[Indian Economic Development] Chapter 6: Employment: Growth, Informalisation and Other Issues

Employment: Growth, Informalisation and Other Issues

Work and employment are central to human dignity and economic well-being. This chapter examines how employment in India has changed since independence, the growing dominance of informal work, and the challenges of unemployment.

• Worker — a person who participates in any economic activity to earn an income
• Labour Force — all persons who are willing and able to work (employed + unemployed)
• Work Participation Rate (WPR) — proportion of the population that is engaged in work
• Unemployment Rate — (number of unemployed / labour force) x 100

1. 1.Main workers — worked for at least 183 days in a year
2. 2.Marginal workers — worked for fewer than 183 days
3. 3.Non-workers — did not participate in economic activity

India's economy has a formal/organised sector and an informal/unorganised sector:

• Formal sector — establishments with 10 or more workers, governed by labour laws, workers have job security, provident fund, gratuity, and regular wages. Includes government, PSUs, registered factories.
• Informal sector — very small establishments, domestic workers, self-employed street vendors, construction labourers. No formal contracts, no social security, low and irregular wages.

About 90% of India's workforce works in the informal sector, contributing roughly 50% of GDP. This means the vast majority of Indian workers have no job security or social protection.

Even in the formal sector, there is a growing trend of hiring workers on contract, part-time, or casual basis — these workers work in a formal enterprise but have informal employment conditions. This is called informalisation.

• Reasons for informalisation:
• Firms want flexibility to hire and fire (rigid formal labour laws)
• Cost reduction (no provident fund, gratuity for contract workers)
• Globalisation pressure to cut costs

1. 1.Open unemployment — willing and able to work but finds no work (urban educated unemployment)
2. 2.Disguised unemployment — more workers on a task than needed; removing some would not reduce output (common in agriculture: a family of 5 works a 2-acre farm that needs only 3)
3. 3.Seasonal unemployment — unemployed during off-seasons (e.g., farmers idle after harvest)
4. 4.Educated unemployment — graduates and postgraduates unable to find jobs matching their qualifications

• The National Sample Survey (NSS) classifies workers by employment status:
• Self-employed — largest category (~52%), farmers, artisans, shopkeepers
• Regular salaried/wage employees — stable employment (~23%), mostly in formal sector
• Casual wage labourers — (~25%), hired daily or seasonally, lowest wages, no security

• Female Work Participation Rate (WPR) is lower than male WPR
• Women are concentrated in informal, low-paid work
• The "gender wage gap" — women earn less than men for similar work
• Unpaid care work (cooking, childcare) by women is not counted in GDP
• Women face social barriers to working outside home in many regions

• MGNREGS — guarantee employment in rural areas
• National Skill Development Mission — skilling youth for formal employment
• Pradhan Mantri Mudra Yojana — loans to micro-entrepreneurs in informal sector
• ESI and EPFO — social security for formal sector workers

Example 1: Disguised Unemployment Illustration
A farm of 4 acres employs 6 family members. The same output could be produced by 4 workers. The extra 2 workers have zero marginal productivity — they appear employed but their work adds nothing. This is "disguised" unemployment, prevalent in Indian agriculture. If these 2 workers leave for the city, farm output does not fall.

Example 2: Informalisation in Garment Factories
A Delhi garment factory employs 200 workers. 50 are permanent (formal): they get provident fund, annual leave, ESI coverage. The other 150 are on seasonal contracts for 6 months: no PF, no gratuity, no job security. Though they work in a "formal" enterprise, their employment is informal — this is informalisation.

Example 3: Educated Unemployment
In 2022, India had over 10 million engineers but thousands were unemployed or doing jobs below their qualifications (driving cabs, working as salespeople). This mismatch between educational qualifications and available jobs is educated/structural unemployment — partly a skills-quality mismatch and partly insufficient formal job creation.

Example 4: Seasonal Unemployment in Agriculture
A rice farmer in Odisha cultivates one crop (June to November). For the remaining 6 months (December to May), there is no farm work. If no non-farm employment exists locally, this farmer is seasonally unemployed — a vast source of underutilised labour in rural India. MGNREGS specifically targets this seasonal gap.

Example 5: Gender Wage Gap
A study of construction workers in UP finds: male unskilled workers earn Rs. 350/day; female unskilled workers earn Rs. 250/day for the same task. The 30% wage gap cannot be justified by skill differences — it reflects social discrimination against women workers. This reduces women's incentive to enter the workforce.

Example 6: Self-Employment in the Informal Sector
A street food vendor in Mumbai earns Rs. 15,000 per month with no contract, no ESI, no pension. He is "self-employed" and counted as a worker (not unemployed), but his income is irregular, he has no social security, and one illness can wipe out his savings. Most Indian "employment" looks like this — precarious and informal.

Example 7: Formalisation Challenge
A small textile shop employs 6 workers without any formal contracts. Under the new Labour Codes, firms with over 10 workers must provide formal benefits. So the shop stays below the threshold of 10 workers deliberately — keeping workers informal. This shows how labour regulations can ironically incentivise informality.