How Mobile Are Workers across Informal and Formal Jobs in India?

The Indian labour market is characterised by a high level of informality, with large numbers of workers in poorly paid “lower tier” informal jobs, and somewhat better paid “upper tier” informal jobs, and no benefits or security of tenure as formal jobs. Using a longitudinal data set for India, this study examines the likelihood of individuals moving up from lower tier to upper tier informal jobs and to formal jobs (and vice versa). It is found that self-employed workers exhibit relatively more mobility compared to wage workers. The persistence rates for formal wage employed and lower tier informal wage employed are high. However, lower tier informal workers, whether in self or wage employment, have limited upward transition possibilities.

One of the most salient features of the economies of developing countries is the existence of a large informal sector. Recent estimates suggest that the informal economy in emerging and developing countries accounts for more than 93% of total global informal employment and more than 82% of the economic units, with sub-Saharan Africa and South Asia being the largest contributors (ILO 2018). The trend towards informalisation is only expected to escalate further in the future, thanks to the rise of informal service sector activities in these developing regions, especially South Asia.