Posted by Anjali Kaur on Aug 01, 2020

Formal and Informal Sector of Employment

Employment is an activity which enables a person to earn, that is, a person gives his services and gets paid in return. So, if all those who are willing and able to work are working at the existing wage rate, then there will be no unemployment or there will be full employment in the economy. If people do not get work at the prevailing or even less then the prevailing wage rate, that situation is termed as unemployment. The structure of jobs in India is divided into the Formal and Informal Sector of Employment. Let’s understand these.

Formal Sector of Employment

  • Under this, all the public sector establishments and that private-sector establishment which employs10 or more hired workers are called formal or organized sector establishments.
  • Employees working in the formal sector are called formal sector workers. These employees get their rights protected through labor laws specified by the government.
  • The workers under the formal sector are entitled to social security benefits such as provident fund, gratuity, pension, etc. Hence, formal sector employees earn more than informal sector employees.
  • The workers under the formal sector can form trade unions and have string bargaining power as their rights are protected by various labor laws.
  • According to the data collected in 2016 in India, 30 million workers out of 473 million workers are working in an organized or formal sector. In other words, just 6% of the total workforce is working in the formal sector.

Informal Sector of Employment

  • All private sector establishments which employ less than 10 workers are called informal or unorganized sector establishments.
  • Employees working in the informal sector are called informal sector workers.
  • Informal sector workers are not entitled to social security benefits such as a pension, provident fund, gratuity, etc,. These workers do not get a regular income, and they are not protected by any law by the government.
  • Workers under the informal sector cannot form trade unions and have weak bargaining power. Their rights are not protected by labor laws. These workers are always at risk of losing their jobs, as they can be terminated anytime without any compensation.
  • The informal sector includes millions of farmers, agricultural laborers, owners of small enterprises, etc. The technology used in the informal sector enterprises is generally outdated, they do not maintain books of accounts. It also includes non-farm casual wage laborers such as construction workers and head load workers.
  • According to 2016 data in India, around 94% of the total workforce is working under the informal sector. Out of 30 million, informal sector workers, only 6 million, that is, about 21% are women, and 69% are men.
  • The employment growth has declined in the organized sector and has increased in the unorganized or informal sector. This situation is termed as informalisation of the workforce.
  • Informalisation of the workforce is a situation when the proportion of the workforce in the informal sector to the total workforce increases.
  • Owing to the efforts of the International Labor Organisation (ILO), the Indian government has initiated the modernization of the informal sector, through the provision of social security measures.

This is all about the Formal and Informal Sector of Employment in India. Read about the situation of Human Resources Development.

Photo by Markus Winkler on Unsplash

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