What do you understand by informalisation of labour ‘? Write your answer with special reference to India. (UPSC CSE Mains 2017 - Sociology, Paper 1)
The informalisation of the Workforce refers to a situation where the workforce in the informal sector increases to the total workforce of the country. Nearly 81% of the employed in India are in informal sector, with only 6.5% in the formal sector and 0.8% in the household sector (ILO, 2018).
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Formal Sector
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Informal Sector
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The formal sector comprises businesses and economic activities that are under the supervision of the government.
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The informal sector consists of workers and enterprises that do not come under the regulation of the government.
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The employees working in this sector are entitled to Social Security Benefits.
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Unlike the formal sector, the employees in this sector are not entitled to Social Security Benefits.
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The pay scale of the formal sector is high as compared to the informal sector.
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This sector has a comparatively low pay scale.
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The employees in this sector enjoy job security and fixed working hours.
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No such job security or fixed hours are available to the employees in this sector.
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The enterprises in this sector are licensed and are liable to pay taxes to the government.
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The enterprises in this sector are not liable to pay taxes to the government.
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All public and private sector enterprises that employ more than 10 people are considered to fall under the formal sector.
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All the enterprises that employ less than 10 people are considered to fall under the informal sector.
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The workers in the formal sector have a right to form Trade Unions to protect their interests.
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Workers in this sector have no such right of forming a Trade Union.
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Reasons
1. Restrictive labour laws related to hiring and firing promotes contract hiring.
2. Absence of thrust on manufacturing has led to service-led growth which requires highly skilled labour.
3. Poor quality of education and training and lack of vocational skills to workers entering labour force.
4. The advent of fourth industrial revolution and automation has further led to the retrenching of unskilled labour.
5. Liberalization of economy has led to outsourcing of work which led to the growth of informal sector.
6. A large number of vacant posts (almost 0.24 million) in public sector & long delays in hiring has further led to growth of informal sector.
Impact
1. Informal sector is predominantly cash-based which give boost to black money generation and tax evasion.
2. Productivity of the economy deceases as companies do not focus on skill development of the employees.
3. Low tax base in informal sector leads to low revenues for the government and high social expenditure.
4. Informal sector provides low wages which leads to low savings, which is detrimental for the credit cycle.
5. Informal workers lack welfare benefits such as healthcare, insurance, education etc, which leads to increased poverty and inequality.
Road ahead
1. Improve the industry-academia partnership to provide youth with necessary skills for employment.
2. Improve the functioning and better monitoring of ITIs to provide suitable skills on latest technologies to labour force.
3. Reduce the hidden unemployment in agriculture by facilitating smooth transition to industry.
4. Inculcate labour migration in urban planning & development.
Government has taken some commendable steps in improving the ease of doing business in the country like better insolvency norms, reducing the cost of compliance, constitution of NCLT which will generate more jobs in formal sector but there is a lot needs to be done on skilled development of the labour force through better education system and specialized vocational training.
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