Employment: Growth, Informalisation and other Issues | Class 12 Indian Economic Development Notes

These notes cover the Class 12 Indian Economic Development chapter on employment: who counts as a worker, how India's workforce is spread across sectors, what informalisation means, and how the government tries to create jobs. They are part of our free study resources for Class 12.

Workers and Employment

Those activities which contribute to the gross national product are called economic activities. All those who are engaged in economic activities, in whatever capacity, high or low, are workers. Even if some of them temporarily abstain from work due to illness, injury or other physical disability, bad weather, festivals, or social or religious functions, they are still workers.

Workers also include all those who help the main workers in these activities. We generally think of only those who are paid by an employer as workers. This is not so. Those who are self-employed are also workers.

The nature of employment in India is multifaceted. Some people get work throughout the year, while others get employed for only a few months in a year. Many workers do not get fair wages for their work. While estimating the number of workers, all those who are engaged in economic activities are counted as employed.

How large is India's workforce?

During 1999-2000, India had a workforce of about 400 million. Since the majority of our people live in rural areas, the share of the workforce living there is higher. The rural workers make up about three-fourths of this 400 million.

Men form the majority of the workforce in India. About 70 per cent of workers are men and the rest are women. Women workers account for one-third of the rural workforce, whereas in urban areas they are just one-fifth of the workforce.

Many women carry out work like cooking, fetching water and fuel wood, and taking part in farm labour. They are often not paid wages in cash or in grain, and at times they are not paid at all. For this reason, these women are frequently not categorised as workers, even though their work is real.

Participation of People in Employment

The worker-population ratio is an indicator used to analyse the employment situation in a country. It tells us the proportion of the population that is actively contributing to the production of goods and services.

If the ratio is higher, it means the engagement of people in work is greater. If the ratio is medium or low, it means that a very high proportion of the population is not directly involved in economic activities. It is worked out as the number of workers divided by the total population, expressed as a percentage.

Employment in Firms, Factories and Offices

In the course of a country's economic development, labour flows from agriculture and other related activities towards industry and services. In this process, workers migrate from rural to urban areas. Eventually, at a much later stage, the industrial sector begins to lose its share of total employment as the service sector enters a period of rapid expansion.

This shift can be understood by looking at the distribution of workers by industry. Generally, we divide all economic activities into eight industrial divisions:

1. Agriculture
2. Mining and Quarrying
3. Manufacturing
4. Electricity, Gas and Water Supply
5. Construction
6. Trade
7. Transport and Storage
8. Services

For simplicity, all working persons in these divisions can be grouped into three major sectors:

• Primary sector: includes divisions (i) and (ii).
• Secondary sector: includes divisions (iii), (iv) and (v).
• Service sector: includes divisions (vi), (vii) and (viii).

The primary sector is the main source of employment for the majority of workers in India. The secondary sector provides employment to only about 16 per cent of the workforce, and about 24 per cent of workers are in the service sector.

Growth and Changing Structure of Employment

During the period from 1960 to 2000, the Gross Domestic Product (GDP) of India grew positively, and its growth was higher than the growth in employment. However, GDP growth kept fluctuating during this period. Employment, on the other hand, grew at a fairly stable rate of about 2 per cent. This gap between fast output growth and slow job growth is a key idea in this chapter.

Informalisation of Indian Workforce

One of the objectives of development planning in India, since independence, has been to provide a decent livelihood to its people. It was envisaged that an industrialisation strategy would bring surplus workers from agriculture into industry, giving them a better standard of living as seen in developed countries.

In practice, a very large share of workers remained in the informal (or unorganised) sector: small units and self-run jobs that are outside government regulation and offer little job security or social protection. The growing share of such work is called informalisation.

Formal Sector Employment

Information about employment in the formal sector is collected by the Union Ministry of Labour through employment exchanges located across the country. Those who work in the formal sector enjoy social security benefits and generally earn more than those in the informal sector.

Developmental planning had assumed that as the economy grew, more and more workers would become formal sector workers, and the share of workers in the informal sector would shrink. In reality this did not happen at the expected pace, which is why informalisation remains such an important issue.

Government and Employment Generation

The government passed an Act in Parliament known as the National Rural Employment Guarantee Act, 2005. It promises 100 days of guaranteed wage employment in a year to every rural household whose adult members volunteer to do unskilled manual work. This scheme is one of many measures governments use to generate employment for people who need jobs in rural areas.

Since independence, the Union and state governments have played an important role in generating employment. Their efforts can be broadly divided into two types:

• Direct generation: the government employs people in various departments for administrative purposes. It also runs industries, hotels and transport companies, and so provides employment directly to workers.
• Indirect generation: when output of goods and services from government enterprises increases, private enterprises that receive raw materials from them also raise their output. This raises the number of employment opportunities in the wider economy.

Conclusion

There has been a real change in the structure of the workforce in India. Newly emerging jobs are found mostly in the service sector. The expansion of services and the arrival of high technology now allow efficient small-scale and even individual enterprises to compete alongside large multinationals.

Outsourcing of work is becoming common. A big firm may find it profitable to close some of its specialist departments and hand small piecemeal jobs to very small enterprises or individuals, sometimes even in other countries. As a result, for many people the home is becoming the workplace.

Not all of this change has helped the individual worker. Employment has become more informal, with only limited social security for workers. In the last two decades there has been rapid growth in GDP, but without a matching rise in employment opportunities. This has pushed the government to take up initiatives to generate jobs, especially in rural areas.

Why it still matters today

The big idea in this chapter, that most Indians work in the informal sector with little security, is still true and sits at the centre of one of the largest debates in the Indian economy right now. Here is how the textbook picture looks in the latest official numbers.

Most workers are still informal. The International Labour Organisation and India's own labour surveys estimate that roughly 90 per cent of workers in India are informal, which means they have no written contract, no paid leave and little social security. This is exactly the informalisation the chapter describes, and it has not gone away.

The worker-population ratio you just studied is measured every year. The Periodic Labour Force Survey, or PLFS, is run by the National Statistical Office under the Ministry of Statistics and Programme Implementation. Its report for 2023-24 put the all-India worker-population ratio at about 58 per cent and the unemployment rate at 3.2 per cent. It also found that around 58 per cent of workers are self-employed, which fits the chapter's point that self-employment is huge in India.

The government is now reaching informal workers directly. In 2021 the Ministry of Labour and Employment launched the e-Shram portal, a national database of unorganised workers. By 2026 more than 31 crore informal workers had registered on it, so that welfare schemes and benefits can be linked to them. It is a modern version of the same goal behind the older schemes in this chapter.

Jobs are still generated by law. The National Rural Employment Guarantee Act, 2005 that you read about above is today known as MGNREGA, and it still guarantees 100 days of wage work to rural households each year. Whether fast growth is creating enough good jobs, often called the jobless growth debate, remains a live argument among economists.

To see how this chapter connects to bigger questions about India and the world, explore the Learnacy Hub, and browse the rest of our Class 12 economics notes.

Sources

1. Periodic Labour Force Survey (PLFS) Annual Report 2023-24, National Statistical Office. Summary: https://www.drishtiias.com/daily-updates/daily-news-analysis/periodic-labour-force-survey-plfs-report-2023-24
2. e-Shram portal registrations, Ministry of Labour and Employment (DD News, Government of India): https://ddnews.gov.in/en/over-31-78-crore-unorganised-workers-registered-on-e-shram-portal-government/
3. Informal economy in India, share of informal workers: https://www.drishtiias.com/daily-news-analysis/informal-economy-in-india