Employment — Growth, Informalisation and Other Issues

The full picture

When we say someone is employed, we mean they are engaged in a productive activity and earning income — a salary, wages, or profit from self-employment. Employment is one of the most important indicators of development because it determines not just income, but dignity, security, and quality of life. In India, there are roughly 500 million workers. On paper, most of them are employed. Yet millions live in poverty. To understand why, you need to look at the kind of employment — not just whether people have work, but what kind of work they have.

India's jobs are divided into two broad categories: formal and informal. A formal job comes with a written contract, fixed hours, and legal protections. If you work at a bank, a government school, or a large company like Infosys, you are a formal worker. Under the Employees' Provident Fund (EPF) scheme, both you and your employer each contribute 12% of your basic wages — your share is deducted from your salary, and your employer adds their share on top. Employers also contribute to ESI — Employee State Insurance — which provides workers with a wide range of benefits including medical treatment, sickness cash allowance, maternity benefits, and compensation for employment injuries. You cannot be dismissed without due process. An informal job, by contrast, has none of these protections. A daily labourer on a construction site, a domestic worker, a street vendor, or a worker in a small unregistered garment unit — these are informal workers. They earn cash, have no written contract, and can be let go at a day's notice.

Here is the striking fact: roughly 90% of India's workforce is informal. Only about 5–8% of all workers have written contracts and social security benefits. This is called informalisation — the process by which the informal sector keeps growing, or at least stays dominant, even as the economy grows. Why does this happen? Partly because agriculture — which employs about 40% of India's workers — has always operated informally. Landless labourers in a village in Kerala or UP work on farms for ₹200–350 per day with no contracts. Partly because many factories and businesses subcontract work to small unregistered units specifically to avoid complying with labour laws. And partly because millions of people — especially migrants and school dropouts — have no choice but to take whatever work is available.

India tried to address rural informal employment through the MGNREGA — the Mahatma Gandhi National Rural Employment Guarantee Act — which legally guarantees 100 days of paid work per year to any rural household that wants it. If the work is not provided, the government must pay an unemployment allowance. The current wage is ₹202–330 per day depending on the state. This has helped millions of poor families, especially women, access some income security. But it is a safety net, not a solution — MGNREGA work is usually earthwork, road-building, or pond-digging, and many states are slow to pay wages on time.

There is also a sharp rural-urban divide in job quality. Cities — especially metros like Mumbai, Bengaluru, and Chennai — have more formal jobs: IT companies, banks, hospitals, and government offices. A software engineer at a company in Bengaluru earns ₹5–8 lakh per year with health insurance, bonuses, and EPF. A nurse at a government hospital in Thiruvananthapuram earns ₹35,000–55,000 per month with a pension. But even in cities, most workers are informal: auto-rickshaw drivers, street food vendors, domestic workers, delivery agents, and construction workers. A brick-layer in Chennai may earn ₹500 per day but has no fixed employer, no sick leave, and no savings for old age.

Two more concepts you must know for your exam. First, the difference between unemployment and underemployment. Unemployment means a person wants to work but cannot find any work. Underemployment means a person has some work, but not enough — either fewer hours than they want (disguised unemployment is a related idea: in agriculture, too many people share too few productive tasks, so removing some workers would not reduce output) or a job far below their skill level (imagine an engineering graduate driving an auto-rickshaw). India's official unemployment rate looks low — around 3–4% — but underemployment and informalisation are the real, larger problems. Second, understand 'jobless growth': this happens when the economy (GDP) grows quickly, but formal employment does not grow at the same pace. India's IT sector generates enormous GDP but employs far fewer people per rupee of output than textile manufacturing or construction. So growth alone is not enough — the type of growth matters.

An Indian example

Ravi's family in a village near Palakkad shows how informalisation works in practice. His father is a paddy farmer who also works as a daily labourer on other farms for ₹300 per day during lean seasons — no contract, no ESI, nothing written down. His sister migrated to Bengaluru three years ago and works as a domestic helper in two apartments, earning ₹8,000 per month combined. She has no sick leave; if she falls ill, she loses income. Ravi himself passed Plus Two last year and is now working at a small mobile repair shop for ₹6,000 per month — no EPF, no ESI, no agreement. All three are employed. All three are informal workers. Meanwhile, their neighbour Mr. Satheeshan retired last year from a government primary school teacher post with a full pension of ₹22,000 per month and free government healthcare — that is formal employment. Ravi's family is not unusual; they represent 90% of India's 500 million workers who work hard every day but carry every risk themselves.

Common misconceptions to watch for

• Many students think: if India's GDP is growing at 6–7%, there must be plenty of good jobs being created. The truth is that GDP growth does not automatically create formal jobs. When growth is driven by capital-intensive sectors like IT and finance — which produce high output per worker using computers and software — relatively few workers are hired per rupee of investment. A ₹100-crore software company may employ 500 people; a ₹100-crore garment factory may employ 5,000. India's growth created mostly informal jobs in services, not formal factory jobs.
• Students often believe informal workers are poor and unproductive, or basically unemployed. In fact, informal workers are employed and productive — a kirana store owner, an auto-rickshaw driver, or an embroidery artisan all produce goods or services and earn income. 'Informal' is a legal status: it means they lack a written contract, social security, and legal protections. It does not mean they lack work or output.
• Some students think informalisation is simply workers choosing freedom and flexibility. While some educated freelancers (like an IT consultant working from home) genuinely prefer informal self-employment, the vast majority of informal workers in India are informal by necessity — they lack the education, capital, social networks, or geographic access needed to compete for formal jobs. For most, informality means insecurity, not freedom.