Employment: Growth, Informalisation and Other Issues

Written and reviewed by Devendra Dubey, Mathematics & Commerce faculty at UniDrill (M.Sc. Mathematics, Osmania University · 10 years teaching). Based on NCERT Economics Class XI (Indian Economic Development), Chapter 6.

Is your friend who helps in the family shop a worker?

Picture a girl who spends every evening at her family's grocery counter, unpaid. Another person has been on leave for a week with fever. A third lives comfortably on inherited rent. Which of the three counts as a worker in the eyes of an economist?

The answer is the first two, and not the third. This chapter is about how India decides who is working, what kind of work they do, how secure that work is, and what happens to those who cannot find any. Every part of it is a count or a classification, which is exactly why CUET loves it: the facts are exact and the traps are easy to set.

Who is a worker, and how do we measure it?

An economic activity is any activity that contributes to the gross national product. A worker is anyone engaged in such an activity in any capacity, high or low, paid or self-employed. The definition is generous on purpose. Helpers of main workers (like the girl at the counter) are workers. People temporarily absent because of illness, injury, bad weather, a festival or a social or religious function are still workers. Only someone with no connection to production, like the person living on inherited wealth, is left out.

To compare regions and groups, economists use the worker population ratio (WPR), the share of the population that is working:

$$\text{WPR} = \dfrac{\text{Total number of workers}}{\text{Total population}} \times 100$$

Worked example: reading a WPR. A town has a population of 20,000, of whom 8,400 are workers. Find the WPR, then find how many workers a WPR of 45 would mean in the same town.

The common wrong step is to divide by the number of adults or by the labour force. WPR always uses the whole population as the denominator, including children and the elderly.

India had a workforce of about 545 million in 2022-23, of whom about 471 million (roughly 86%) lived in rural areas. Men make up about 77% of all workers.

Why rural WPR is higher. Rural families have fewer resources and less access to education, so people enter the labour market earlier and stay longer. Urban families can afford more years of study, and that pulls the urban ratio down.

Why women's WPR is low. Three reasons stand out. Many household tasks done by women are not recognised as productive work. Where men earn a high income, families often discourage women from taking jobs. And participation is uneven: only about 21 of every 100 urban women are economically active, against about 35 of every 100 rural women.

Beyond the textbook. For the exam: women's WPR is low because household work is not recognised as work and some families discourage women from taking jobs. In reality: economists point out that cooking, child care and caring for the elderly sit outside the production boundary used in national accounts, so the measured gap partly reflects what is counted, not only what is done. Why it matters: a low WPR does not mean low effort, it means low recorded effort.

Pause and predict: a student helps her father in his tailoring shop every evening without pay. Is she a worker?

Check your answer: Yes. Unpaid helpers of main workers are counted. Pay is not what makes someone a worker. Engagement in an economic activity is.

Three ways of earning: self-employed, salaried or casual

Workers are classified by status, meaning the terms on which they work.

Self-employment is the largest status. About 58% of India's workers are self-employed, about 22% are regular salaried and about 20% are casual wage workers. The mix changes sharply by gender and by region:

Why the urban and rural rows look so different. In villages most people cultivate their own land, so self-employment dominates. In cities, enterprises need workers on a regular basis, so regular salaried jobs are the biggest category. Among women, self-employment is the largest status and casual work is the second largest, while regular salaried jobs are dominated by men (21% of men against 16% of women).

Eight industrial divisions, three sectors

All economic activity is split into eight industrial divisions, which are then grouped into three sectors.

In 2023-24, the primary sector employed 46.1% of workers, the secondary 24.1% and the tertiary 29.8%. In rural India 59.8% of workers are in the primary sector. In urban India the tertiary sector leads with 60.9%. Women are concentrated in the primary sector: 64.4% of female workers are in it.

The more important story is how the shares moved over five decades:

Casual wage work rose to a peak of 31.8% in 1993-94 before falling to its present level. As the economy developed, workers moved out of agriculture, but agriculture still employs far more people than any other sector, which is why the pace of change matters.

Pause and predict: a worker is classified under Construction. Which sector, and is the division in the primary group?

Check your answer: Secondary. Construction sits with Manufacturing and Electricity, Gas and Water Supply. Only Agriculture and Mining and Quarrying are primary.

Growth without jobs

Between 1950 and 2010 India's GDP grew faster than employment. Employment growth never rose much above 2% a year, and from the late 1990s it slowed further while GDP growth climbed. The result is jobless growth: the economy produces more goods and services without a matching increase in jobs.

The cause is easy to see. Output can grow because each worker produces more (better machines, better methods) even when no extra worker is hired. Growth then shows up in GDP and profits, but not in the number of people employed.

A related change inside the workforce is casualisation, the shift of workers from self-employment and regular salaried jobs towards casual wage work. It matters because a casual worker is paid only for the days worked, with no assured income.

Formal and informal: the 10 worker line

The formal (organised) sector is made up of all public sector establishments and all private establishments that employ 10 or more hired workers. Every other enterprise and its workers are in the informal (unorganised) sector: small farmers, agricultural labourers, small shops and workshops, and casual labourers who work for more than one employer.

The difference is about protection. Formal workers get social security, higher earnings and the right to form unions. Informal workers generally do not. They have no recognised union to bargain for them, no assured benefits, and no secure contract.

In 2019-20, of about 535 million workers, only about 59 million were in the formal sector.

$$\text{Formal share} = \dfrac{59}{535} \times 100 \approx 11\%$$

So about 89% of India's workers are informal. This is informalisation: a very high share of the workforce in unorganised work.

The Ahmedabad lesson. In the early 1980s textile mills across India began to close. In Ahmedabad about 80,000 permanent and over 50,000 non-permanent textile workers lost their jobs over a decade. Families that had belonged to the secure middle class slid into the informal sector, with consequences such as alcoholism, suicides and child labour. The case shows how one sector's collapse can push thousands of formal workers into insecure work. Efforts by the International Labour Organisation led the government to look at modernising informal enterprises and extending social security.

Two views. For the exam: informal work means low earnings and no social security, and a very high share of informal workers is a concern. Another reading: economists also note that the informal sector gives a livelihood to a very large number of people who the formal sector, with far fewer jobs, could not absorb. Both views agree on the policy aim, which is to make informal work more secure and productive.

Pause and predict: a permanent worker in a large mill loses his job and now works as a daily wage labourer for a small contractor with six workers. Is this casualisation, informalisation or both?

Check your answer: Both. His status has moved from regular salaried to casual wage (casualisation), and he now works in an enterprise with fewer than 10 hired workers (informal sector).

Unemployment: not working, but looking

According to the National Statistical Office definition, a person is unemployed when, owing to lack of work, she is not working but is seeking work (through employment exchanges, intermediaries, friends or relatives, or applications) or is willing and available for work at the prevailing conditions. Economists also describe an unemployed person as one who cannot get even one hour of work in half a day.

Data come from three sources: the Census of India, the NSO's reports including the Periodic Labour Force Survey (PLFS), and the registrations at employment exchanges compiled by the Directorate General of Employment and Training.

Why disguised unemployment is hidden. The five farm workers all look busy. But if three of them left, the output of the farm would stay the same, so their marginal contribution is zero. A late 1950s study found that about one third of Indian agricultural workers were disguisedly unemployed. Open and seasonal unemployment are visible in a way disguised unemployment is not.

Pause and predict: a farm needs two workers, but five work on it. Three move to a factory and the farm's output does not change. What does this show?

Check your answer: The three were disguisedly unemployed. Their leaving cost the farm nothing, which is exactly the test for disguised unemployment.

How the government creates jobs

The government generates employment in two ways. Directly, it employs people in government departments and runs enterprises such as industries, hotels and transport companies. Indirectly, when a public sector enterprise (for example a steel company) raises its output, the firms that supply it or depend on its output also expand and hire.

The best known rural job scheme is the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005. It promises 100 days of guaranteed wage employment to every rural household whose adult members volunteer to do unskilled manual work.

Employment generation programmes also aim to reduce poverty through jobs, together with services such as primary health, primary education, drinking water, nutrition, housing and sanitation, rural roads and development of degraded land.

Outsourcing. A growing number of big firms close specialist departments and hand piecemeal work to small enterprises or individuals, sometimes in other countries. New jobs are appearing mostly in the service sector, and for many people the home has become a workplace. The cost is that such work is usually informal, with less social security.

Exam traps

60-second revision

Where this chapter connects

• Previous: Rural Development explains why so many workers are tied to agriculture and the self-employed rural economy.
• Next: Environment and Sustainable Development moves from jobs to the limits of the resources that jobs depend on.
• Related: Human Capital Formation in India shows how education and skills decide which job status a worker can reach, and Liberalisation, Privatisation and Globalisation: An Appraisal connects to the growth of services and outsourcing.