Review on Defining and Measuring Informality in India
Name:
Mudit Chaudhari
Roll No:
20IM10024
1. Introduction
Informal workers make up a large and rising share of the non-agricultural
workforce in the developing world. The issue has been relatively neglected in
debates on human development and poverty reduction. This is especially so in
India, where informality is widespread and rising especially in the organized
sector.
Existing definitions of informality have tended to focus on unidimensional
indicators. Measuring informality within a multidimensional framework can offer
us a richer conceptualization of worker well-being. The study provides a
nationally representative assessment of job quality (JQ) in the Indian workforce.
2. Literature Review
The concept of the informal sector was first brought to the forefront in the 1970s.
Most of the definitions come under the productive and the legalistic criterion.
While the former definition concurs with the dualist school hypothesis, the latter
criteria correspond more with the premise of the "structuralist" school.
Informality and job quality (JQ) are closely related concepts. The literature
indicates a close correspondence between the two measures of informality and
JQ. There is a need to rely on multiple JQ indicators rather than depending on
one or two proxies for workers as formal and informal.
Cross-country comparisons across developing nations show JQ is consideredably better in high-income Latin American nations compared to African nations
and India. The limited literature on India, in this regard, finds widespread workbased insecurities among the workers in the Indian labour market.
Recent literature has also explored the utility of the capabilities approach in
assessing JQ. Green (2006), Monteith and Giesbert (2017), and Sehnbruch
(2004) offer a useful framework for the study of JQ within the capabilities
approach. Similarly, Miles (2014) provides a critical overview of the capabilities
approach and its use in the study of JQ. Despite the usefulness of the concept
from the point of understanding worker well-being, there is a limited number of
studies on the issue.
3. Conceptual Framework
A study proposes a third criterion based on multiple indicators of JQ (or work
securities) to distinguish between good-quality and bad-quality jobs. The study
attempts to improve upon the existing indicators by classifying workers within a
multidimensional JQ framework.
The Different Measures are:
● a sector-based criterion for separating workers into the organised and
unorganised sectors, based on the size of the business
● an occupation-based criterion that uses the availability of social security benefits
to classifying people into formal and informal employment
● To distinguish between high and bad-quality occupations, the study suggests a
third criterion based on numerous indicators of JQ (or work security).
Existing approaches to defining informality and JQ: Efforts to generate
statistics on the informal economy at a national level led to the definition of the
informal sector by the 15th International Conference of Labour Statisticians
(ICLS), 1993. The Delhi Group concluded that the enterprise-based definition
needs to be complemented by an employment-based criterion.
A multidimensional framework: Worker well-being depends not just on income,
but also on JQ aspects such as employment security, workplace security, etc.
Given the significant part of one's life that a person spends at work, JQ exerts a
major influence on the overall capabilities set of an individual.
Conceptualising JQ and its multiple dimensions: Measure of JQ is based on
six different dimensions of work-based security and associated indicators.
Different dimensions have both intrinsic and instrumental value, in that they are
not only the outcomes of employee well-being but also contribute to the
improvement in the other JQ dimensions.
4. Data and Methodology
4.1. Data Source
The study uses unit-level data from the National Sample Survey
Organization (NSSO) Employment-Unemployment Survey (EUS) for three
periods 2004– 05, 2009–10, and 2011–12. We use this data to distinguish
workers between the formal and informal economies.
4.2. Methods
The study assesses JQ in India in three different stages. In the first stage,
we use the fuzzy set approach to measure JQ among workers. We also
compare JQ for workers across the three dichotomous categories of formal
vs. informal employees, organised vs. unorganised sector, and good jobs vs
bad jobs.
4.2.1 Stage 1: Classifying Workers into Formality and Informality
We have used the NCEUS methodology, modifying it for our purpose,
of classifying workers under criteria 1 and 2. We use the type and size
of the enterprise to classify workers into organised and unorganised
sectors. Information on access to social security benefits as well as the
usual status of the workers is used to distinguish workers into formal
and informal employment.
4.2.2 Stage 2: Measuring JQ
The paper also investigates the JQ of the informal workers (defined
under each of the three criteria) within the six dimensions of work-based
security. We argue that the fuzzy set approach is appropriate for our
study given the vagueness and continuity inherent in the concept of
informality.
4.2.3 Stage 3: Determinants of Informality
In the second and third models, the dependent variable is a binary
indicator of unorganized vis-a-vis organised sector employment and
bad-jobs vis-à-vis good-jobs employment, respectively. The
methodology to classify workers into dichotomous categories under the
three different criteria is discussed in detail below.
5. Results and Discussion
5.1. Job Quality among the Informal
Informal and unorganised sector workers fare poorly in the six dimensions of
work-based security. This is especially so in the case of income security,
employment security and representation security. Unorganised workers fare
comparatively better in the labour market security, work security and skill
reproduction security. The study finds that informal and unorganised sector
workers are worse off than the formal and organised sector workers. The
overall JQ scores are also quite deplorable, especially when compared to
high-income nations in Europe and Latin America. Our results indicate
working conditions in India to be similar to those in African or lower-income
Latin American nations.
5.2. Trends and Characteristics of Informality
The incidence of informal employment across age groups shows informality
falling from a high level with rising age before increasing among the elderly.
Incidence of informal (or unorganised sector or bad-job) employment has
seen a decline over time among those with technical education and those
with "diploma and above". Informal (or unorganised sector or bad-job)
employment is significantly higher for backward castes/classes like
Scheduled Castes (SC), Scheduled Tribes (ST) and Other Backward
Classes (OBC) compared to the more privileged classes. Informality is found
to be more widespread in rural areas, among females and backward socioreligious groups.
6. Conclusion
The study attempts to define informality using multiple dimensions of work-based
securities within the capabilities approach. It also examines the trends and
determinants of informality in India under alternative definitions. The study
highlights the deplorable state of working conditions and large scale insecurities
among workers in the country.