Informal Work in India: A Tale of Two Definitions

Despite growing informality in developing economies, identifying correlates of informality continues to be a challenge due to multiple definitions of informality as well as data limitations. In order to explain the determinants of informality, the authors use two operational definitions of informality, namely ‘informal sector’ and ‘informal employment’, based on enterprise characteristics and employment characteristics, respectively. Using unit-level data from a nationally representative dataset, the authors find that, irrespective of how informality is defined, workers’ education, vocational training and gender play a significant role in determining participation in the informal labour market. The results of this study are robust to correction for selection bias and controlling for regional variations. The findings emphasise the need to restructure skill development programmes to account for the heterogeneity of informal workers.