The Central Statistical Office (CSO) recently reported adding 4.1 million jobs in the formal sector, defined as those with government-mandated social security benefits like the Employees' Provident Fund. Over the past few months, similar estimates have been released by NITI Aayog and official economists, provoking scepticism from informed observers.
The reliability of the official estimates is questionable for two reasons. First, they are based on administrative records from social security schemes, whose completeness and accuracy are uncertain. Second, formal sector workers can access multiple schemes, creating a risk of double counting. As the report fails to clarify how this issue is managed, leading experts sought to release administrative data for independent verification.
Furthermore, the official data faces a conceptual issue. The social schemes outlined previously apply only to establishments that meet a specific employment threshold and pertain to certain types of enterprises. For example, companies with 20 or more employees in the manufacturing sector must provide the Employees' Provident Fund (EPF) to all workers. Consequently, if a factory's workforce increases from 19 to 20 employees, it will fall under the purview of the EPF regulations. Herein lies the fault.
The formal sector stands at the apex of India's labour market pyramid, with agriculture at the bottom, employing 50% of the workforce. The remaining workers are in the non-farm informal sector, spread across rural and urban areas. This sector has grown in recent decades at the expense of the other two above mentioned sectors. Moreover, nearly half of the informal labour workers are self-employed in household (or own account) enterprises, often engaging in unpaid family labour. A defining characteristic of informal labour markets is varying degrees of underemployment or disguised unemployment.
Since 1972-73, the five-yearly Employment-Unemployment Surveys (EUS) by the National Sample Survey (NSS) have been essential for analysing labour market trends. While infrequent, these surveys have offered valuable insights into the complexities of the labour market; access to household-level data lately has spawned rich and granular analyses of the informal economy.
The last EUS was conducted in 2011-12, leaving no reliable means to update employment trends. An annual Periodic Labour Force Survey has replaced the EUS. Still, it will take time for these new datasets to provide stable estimates. Meanwhile, the Labour Bureau has conducted household surveys since 2010-11, revealing a decline in the worker-population ratio between 2013-14 and 2015-16, indicating a deteriorating employment situation.
