Informality in the Indian Labour Market: An Analysis of Forms and Determinants

Defined as any employment which is not accompanied by social security benefits, informal employment has persisted in India’s labour market, manifested predominantly as self-employment or employment in informal enterprises. In recent years, informal employment within formal enterprises has emerged as a prominent employment arrangement. Juxtaposing job attributes alongside enterprise characteristics based on internationally accepted conceptual framework, the paper contrasts broad trends across forms of informal employment by region, industry and gender. Using a multinomial probit model with correction for selection bias, a comparative examination of the determinants of employment choice reveals that informal workers in formal enterprises are more educated and experienced than their counterparts in informal enterprises. Notably, highly educated individuals and those in high-skill occupations were more likely to secure informal employment in formal sector, rather than formal employment, with the impact exacerbated amongst women. In addition, the results suggest greater inflexibility in informal work in formal enterprises. The analysis in this paper challenges conventional notions of the informal labour force as being comprised of the very old or very young, illiterate or under-educated individuals.