India’s labour market: stable outside, churn within — Part 1 | Number Theory

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The standard expectation from economic development is that with GDP growth there will be a shift in activities from self-employment towards wage employment and finally into secure formal jobs. For India, despite many years of high economic growth, this has not happened and the overall employment structure appears stagnant. The share of salaried employment, as per official labour surveys, for example, has increased by just nine percentage points to 25% between 1983 and 2023. Self-employment’s share has hardly changed from

Office goers in Mumbai. (AFP File)

India’s labour market: stable outside, churn within

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  Tracking CMIE data over eight “waves” from 2017-19 shows a stable share across employment categories

  Centre for Monitoring Indian Economy’s (CMIE) Consumer Pyramids Household Survey (CPHS) data tracks about 87,000 workers and records details of their employment every four months (referred to as a “wave”). Workers are categorised into: permanent salaried, temporary salaried, casual wage, or self-employment. Permanent salaried employment corresponds to formal wage work—secure and relatively well-paid—while the other three represent various forms of informal employment, differing in their levels of precarity and employment relations. Based on incomes and degree of precarity (Table 1), we order these employment arrangements as follows: permanent salaried, followed by self-employment, followed by temporary salaried, and casual wage work. Permanent salaried employment, on average, is associated with a monthly earning of Rs. 25,000, about half that for self-employment, followed by about Rs. 10,000 for workers in temporary salaried work, and about Rs. 7,500 for casual wage workers. We observed workers from May 2017 to September 2019 – this looks at the period before the pandemic’s impact – over eight waves of four months each. A comparison of broad employment shares shows that they have remained stable over this period. Given the near complete economic recovery post-pandemic and the more or less unchanged structure of the labour market, we do not expect any changes in the nature of transitions post-pandemic too.
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  But this hides high a high flux in the labour market

  This is the most important insight from the data. Irrespective of the kind of employment arrangements, we observe a large share of workers moving out of employment or into other kinds of employment over the eight waves. For instance, among casual wage workers, only about 47% remain in the same type of work by the end of eight waves. The share is even lower for temporary salaried workers, many of whom shift to self-employment or exit the labour market altogether. The self-employed have the highest level of ‘stickiness’ to their employment arrangement. Given the huge volume and possibilities of transitions, how do we make sense of these labour market dynamics?
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  Identifying the major employment trajectories

  To delineate meaningful employment patterns, form this churn, we identify dominant employment trajectories in the labour market using a trajectory analysis. These are represented in Chart 3, where employment arrangements are ordered by informality, with 0 being out of the labour market, 1 - casual wage work, 2 - temporary salaried, 3 - self-employed and 4 - permanent salaried. This analysis clusters individuals with similar trajectories together, such that the sequence of employment outcomes is similar within groups while as different as possible between groups. A line on the graph represents a predominant employment pathway for a significant share of individuals over the eight waves. The dominant trajectory, accounting for 38.4% of the sample, is that representing those remaining consistently in self-employment (Trajectory 5). These are largely agricultural workers or workers in petty services. The next largest trajectory (Trajectory 3), accounting for 27.2% of the sample, essentially captures workers who move between different kinds of informal wage work - either casual wage or temporary salaried. Consider these as itinerant workers moving between construction work, casual agricultural work or even low productivity services. Another distinct and desirable - but small -trajectory with only 6.7 % of the workforce, is Trajectory 7 capturing workers who consistently remain in permanent salaried employment. Other trajectories ranging between 5 to 8 percent, represent different transitions across various forms of informal self-employed or wage work and out of employment.
• What are the economic and developmental implications of these trends? The concluding part of this series will answer this question.