Informal employment in India: An analysis of forms and determinants

This paper disaggregates informal employment into different forms, with particular focus on the growing informalisation of the labour force by formal enterprises. The analysis of the determinants of forms of informal employment moves beyond the standard binary approach to informal employment and uses a multinomial probit model with correction for sample selection bias. The results reveal a clear distinction amongst the workers in different types of informal employment. The informally employed in informal enterprises and the self-employed were generally the relatively young and uneducated. However, the more recent form of informal employment, i.e., the informal employment in formal enterprises, is comprised of relatively older and well-educated individuals. The results challenge conventional notions of the informal labour force as being comprised of the very old or very young, illiterate or under-educated individuals. We find, for instance, that a young graduate was far more likely to be engaged informally in formal enterprises, rather than formally. The results provide a direction for policy to supplement education reform with reform of employment conditions.