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Informal Work in India: A Tale of Two Definitions

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Abstract

Despite growing informality in developing economies, identifying correlates of informality continues to be a challenge due to multiple definitions of informality as well as data limitations. In order to explain the determinants of informality, the authors use two operational definitions of informality, namely ‘informal sector’ and ‘informal employment’, based on enterprise characteristics and employment characteristics, respectively. Using unit-level data from a nationally representative dataset, the authors find that, irrespective of how informality is defined, workers’ education, vocational training and gender play a significant role in determining participation in the informal labour market. The results of this study are robust to correction for selection bias and controlling for regional variations. The findings emphasise the need to restructure skill development programmes to account for the heterogeneity of informal workers.

Résumé

Malgré l’augmentation du travail informel dans les économies en développement, l’identification des corrélats de l’informalité continue d’être un défi en raison des définitions multiples de l’informalité ainsi que des limites des données. Afin d’expliquer les déterminants du travail informel, les auteurs utilisent deux définitions opérationnelles de l’informalité, à savoir « secteur informel » et « emploi informel » selon les caractéristiques respectives de l’entreprise et de l’emploi. Grâce aux données unitaires provenant d’un ensemble de données représentatives au niveau national, les auteurs constatent que, quelle que soit la définition de l’informalité, l’éducation des travailleurs, la formation professionnelle et le sexe jouent un rôle important dans la détermination de la participation au marché du travail informel. Les résultats de cette étude sont robustes quant à la correction du biais de sélection et au contrôle des variations régionales. Les résultats soulignent la nécessité de restructurer les programmes de développement des compétences pour prendre en compte l’hétérogénéité des travailleurs informels.

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Fig. 1

Source Authors’ own calculation based on 55th, 61st and 68th round of NSSO employment–unemployment survey, unit-level data

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Notes

  1. Unit-level data pertains to data from the ultimate stage of the large scale multi-stage sample survey: household level. The non-agricultural sector comprises enterprises engaged in mining and quarrying, fisheries, and enterprises in the manufacturing and service sectors.

  2. Informality or informal work refers to both informal sector employment and informal employment.

  3. The ICLS is an ILO meeting that takes place every 5 years. Participants include experts from governments, as well as from workers’ and employers’ organisations.

  4. According to the 17th ICLS, ‘household’ includes households producing goods exclusively for their own final use (e.g. subsistence farming), as well as households employing paid domestic workers (maids, drivers etc.)

  5. The reference periods used by the NSSO are: the usual principal activity status (UPAS) pertaining to the activity for the major part of a year with a reference period of the past 365 days; usual principal and subsidiary status (UPSS) relating to the status of the principal activity and subsidiary activities in the reference period of the previous 365 days; current weekly status (CWS), that is, the activity status pursued during a reference period of 7 days preceding the survey date; and the current daily status (CDS), that is, the time disposition of a person on each day of the reference week. Data in this study are from the last employment-unemployment survey of NSSO. Since 2017-18, the Periodic Labour Force Survey (PLFS) is the official source of information on employment and unemployment in India.

  6. We dropped individuals having national industrial classification (NIC) code 1, that is, those who are agricultural workers: including cultivators and agricultural labourers. However, we included workers in allied activities such as fisheries, mining and quarrying.

  7. The observations dropped were 143,076 individuals based on UPAS and 41,524 agricultural workers.

  8. Employment status based on a reference period of 365 days.

  9. This is the ratio of dependants in a household to the total number of members of the household. The dependants in a household are children below 5 years of age and those above 60 years of age and not in the workforce.

  10. Results based on education categories are not provided for brevity but can be provided upon request. The main findings of our paper do not change qualitatively when we treat education as a categorical variable.

  11. The MGNREGS aims to enhance the livelihood security of people in rural areas by guaranteeing 100 days of wage-employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work in the vicinity.

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  1. SJMSOM, IIT Bombay, Powai, Mumbai, 400076, India

    Rayees Ahmad Sheikh & Sarthak Gaurav

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  1. Rayees Ahmad Sheikh
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Sheikh, R.A., Gaurav, S. Informal Work in India: A Tale of Two Definitions. Eur J Dev Res 32, 1105–1127 (2020). https://doi.org/10.1057/s41287-020-00258-z

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