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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 authors would like to acknowledge the anonymous reviewer for their insightful comments.

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.

The earlier literature on the informal economy viewed it as a “monolithic” bloc, where all those without access to the formal sector find themselves in (La Porta and Shleifer 2014). More recent studies have highlighted the heterogeneous nature of the informal economy, recognising the inherent duality in both self-employment and wage employment (Kanbur 2017). In informal self-employment, a distinction can be made between employers, that is, enterprises that employ hired workers and are relatively productive, and own-account enterprises, which use family labour and are involved in subsistence activities (Chen 2006, 2012; Raj and Sen 2016).

In informal wage employment, there may be workers with better paid jobs with some de facto benefits, though not with the same security of tenure and social security benefits as formal wage jobs, coexisting with poorly paid jobs in manual work, such as in farms and in construction sites, where informal employment is a last resort job to avoid unemployment (Fields 2014). Thus, empirical studies of informal labour markets in developing countries characterise them as two-tiered, with informal workers either being in “lower tier” or “upper tier” self/wage employment (Fields 2007).

Among developing countries, India has the largest number of informal workers, and has a very high proportion of informal workers in the total workforce, at 83.5% in 2017–18 (NSSO 2019). The persistence of informality in India has been a puzzling feature of India’s economic development pathway, given the rapid growth of the Indian economy since the early 1990s (Raj and Sen 2016). In addition, several studies have documented the heterogeneous nature of India’s labour market, and that both the self-employed and the wage employed in informal work have both “upper tier” and “lower tier” segments in India (NCEUS 2007). In this paper, we ask: How likely is it for informal workers to transition to formal jobs, and are reverse transitions possible? Do mobility patterns differ between the self-employed and wage workers? Does “lower tier” informal work provide a pathway to a better paid job? Or is it a dead-end activity, with very limited possibility for upward mobility? And what are the implications of transitions in informal and formal work status for income gains or losses?

Existing scholarship on the informal sector in India does not examine the likelihood that workers can transition from one work status to another, as they mostly use repeated cross-sectional surveys of the National Sample Survey Office (NSSO) (Mazumdar and Sarkar 2013; Raj and Sen 2016). By using a nationally representative panel of workers, both in formal and informal jobs, over the period 2004–05 to 2011–12, and by implementing a classification of the work status of these workers (which we discuss in the next section), we were able to analyse the transitions of workers across different tiers of the Indian labour market over time. The period of our analysis also coincides with the high-growth episode of the Indian economy, when the average annual growth in the gross domestic product was 8.4%, the highest in the post-independence period, which allows us to examine whether India’s rapid growth led more informal workers to move to the formal sector, as well as to increases in their earnings.

The rest of the paper is divided into different sections as explained. The next section presents a framework of analysis for the Indian labour market, taking into account the two-tiered nature of informal work. The following section then presents the data and definitions of various employment statuses identified in the study. In the section after that, we first look at the composition of employment by work statuses and worker characteristics. In the final section, we investigate the flow of workers between different work statuses using transition matrices and then share conclusions.

Characterising the Labour Market in India

The early literature on modelling labour markets in developing countries characterised the dualism inherent in these labour markets in terms of two sectors or work statuses—a formal sector, which offers relatively attractive wages and other terms and conditions of employment, and an informal sector, which offers relatively unattractive pay and conditions of employment (Fields 2007). More recent literature has pointed out the multisectoral nature of labour markets in developing countries, with two important dimensions. First, workers can either be in wage employment or self-employment, where self-employment and wage employment work statuses exist in both the formal and informal sectors. Second, the informal sector is characterised by its own duality, where both wage-employed and self-employed workers can be in upper tier or lower tier work status.

Our first task is to classify the workers into formal and informal work status. There is a lack of consensus in the literature on how informality should be defined and measured empirically. This has led to scholars employing a host of approaches, ranging from definitions based on firm attributes to ones based on job characteristics, to define informality (Fields 2019). As our focus is on jobs, we rely on the definition adopted by the 17th International Conference of Labour Statisticians at the International Labour Organization, which examined informality from the perspective of “jobs.” According to this definition, informal workers lack any type of legal recognition or protection, and do not have secure employment contracts, workers’ benefits, social protection or workers’ representation. This implies that within self-employment, formal self-employed are those who work in enterprises that are registered with state authorities and contributing to social security. Within wage employment, formal wage-employed are workers who contribute to social security, and who may also have security of tenure.

To operationalise the two-tier schema of informal labour markets, we follow M Danquah et al (2019).1 Upper tier informal work status comprises informal employers (that is, unregistered enterprises who use hired workers), and individuals who have technical and vocational training (such as plumbers and electricians). These activities may sometimes be preferred to formal employment (such as a car mechanic who leaves their job in a formal firm, manufacturing automobiles, to start their own business). Lower tier informal work status, on the other hand, is “free entry” employment, accommodating the poorest and least skilled workers, who would be barred from entry into high-paying self-employment because of a lack of capital and skills (Fields 1990; Bandiera et al 2013; Basu et al 2019). These are own-account workers and contributing family workers, examples of which are street vendors and waste pickers. In the case of wage employment, upper tier informal work status comprises wage work that provides some de facto benefits (though not as generous as those provided to formal wage workers), or in occupations that need some prior training or skills. Lower tier informal work status comprises low, casual wages, and is often associated with activities that need a high degree of manual labour.

In Figure 1, we provide a characterisation of the multi-tiered nature of labour markets in developing countries. Starting with the working-age population first, an individual may be employed, unemployed or out of the labour force. Among those employed, workers may be self-employed or wage-employed, depending on their occupational position. The self-employed and wage-employed can be in formal or informal work status. Within the informal work status, the worker can be in upper tier or lower tier work. This provides us six possible work status characterisations for any individual employed worker at a point in time: (i) formal self-employed; (ii) formal wage-employed; (iii) informal upper tier self-employment; (iv) informal upper tier wage employment; (v) informal lower tier self-employment; and (vi) informal lower tier wage employment.

Workers can switch from one “work status” to another over time. Such transitions can either be horizontal or vertical. A formal self-employed who opts to work as a formal wage worker reflects horizontal transition. A lower tier informal wage worker who is able to find a job in upper tier wage employment represents vertical mobility. Vertical and horizontal transitions can be combined if an informal lower tier wage worker becomes an informal upper tier self-employed person. The schema that we propose does not constrain the direction of movement— which can be upward or downward—allowing for a complex set of possibilities of transitions among the six work status classifications that we have delineated. Further, it is an empirical question whether vertical transitions lead to income gains, and at the same time, horizontal movements may also correspond to income gains or losses.

Understanding the Context

We now apply the schema to the Indian context. The social and economic structure of labour markets in India makes the schema particularly applicable to the Indian case. First, consider self-employment. In India, formal firms in manufacturing and services need to register with the relevant state authorities. As NCEUS (2007) notes, informal firms (that is, firms that are unregistered), can be of two types: enterprises that use hired labour (non-household enterprises), and enterprises that use only family labour (that is, household enterprises). For the larger of the unregistered non-household enterprises, the decision not to formalise may be due to the fact that these enterprises choose to avoid the occupational and health regulations that every formal firm needs to follow under the Factories Act, 1948 (Kanbur 2017).

For the smaller of the unregistered non-household enterprises, constraints to growth may be due to lack of availability of credit (Raj and Sen 2015). Unregistered non-household enterprises are significantly more productive than household enterprises in India, and can be classified as upper tier informal self-employed, while household enterprises can be classified as lower tier informal self-employed (Raj and Sen 2016). In the case of wage employment, formal wage workers in India have permanent job contracts and are typically protected from job dismissal, especially in larger firms, as well as have access to social security benefits (Saha et al 2014). Upper tier informal wage workers do not have the same job security as formal wage workers, and can be employed either in formal or informal firms. However, they may enjoy de facto benefits such as subsidised meals and housing. They may also be skilled workers, who have some type of vocational training. Lower tier informal wage workers, on the other hand, are in “free entry” occupations and unskilled work.

In rural areas, these are agricultural wage workers, and in urban areas, these are construction labourers. These occupations are at the bottom of the heap in India (Harriss-White 2010). Agricultural labour in India has the highest poverty rates among all occupational groups, and lower castes in India’s social hierarchy of labour are over-represented in this occupational group (Gang et al 2016). In the case of construction labourers, these are workers who are often paid a daily wage, and they move from city to city searching for manual work in construction sites as “footloose labour” (Breman 2012; Shah et al 2018). We now turn to a discussion of the data we use to study worker transition in India, and how we operationalise the classification as described in Figure 1 in the Indian case.

Data and Work Status Classification

Data: The data for this study are drawn from the India Human Development Survey (IHDS), conducted in 2004–05 and again in 2011–12 (henceforth referred to as 2005 and 2012, respectively). This nationally representative, multi-topic survey collected information both at household and individual levels. In its first round carried out in 2005, the survey covered 2,15,574 individuals from 41,554 households in 1,503 villages and 971 urban neighbourhoods, across all states and union territories of India (with the exception of Andaman and Nicobar, and Lakshadweep islands). In the second round, 83% of the original households were traced and resurveyed. For this study, we restrict our analysis to individuals in a balanced panel, which comprises of 1,50,983 individuals from a total of 2,15,574 individuals surveyed in both rounds. This panel data set has helped us to follow the same individuals and households through time, and examine the labour force flows across different types and sectors of employment.

The sample is restricted further as follows. First, as the study focuses on labour market transitions, we confined our sample to individuals in the prime working age (15–65 years old), who make up 62.17% of the subsample. Second, our analysis in this paper is focused on the employment dynamics of individuals who are active in the labour market, and we do not cover entry or exit dynamics. Our main focus is on workers engaged in non-farm activities and agricultural wage workers in the initial wave of the survey panel, as against farmers or those being unemployed.

More specifically, in most part of the paper, the emphasis is on transitions of workers in these categories between the six mutually exclusive labour market statuses discussed earlier.2 Third, we eliminated individuals with income above the 99th percentile to reduce the measurement error. Fourth, we dropped individuals with missing values in our variables of interest. For instance, for some individuals, information on years of schooling was missing, and for some, the gender was coded wrongly across the two rounds. Similarly, for many individuals, income figures were missing either in the first round or in the second round, or in both the rounds. These adjustments leave us with a balanced panel of 37,356 individuals.

Work status classification: The key to this study is to accurately define the work status of the worker. We base our definition of a worker on the minimum number of hours they have worked in a year. Following L Lei et al (2019), we fix this threshold at 240 hours,3 and those individuals who have reported to have put in at least 240 hours in a particular activity are counted as being in the workforce. In defining the “activity status” of a worker, our study considers their main job, that is, the job where the worker has spent the maximum hours in the last year, out of all the jobs they have worked on. As discussed in a previous section, the transitional analysis in this paper focuses on six mutually exclusive work statuses and does not consider unemployment. We classify the workers into six mutually exclusive work statuses as follows. We start with wage workers. Among the wage workers, those with permanent job contracts are classified as formal wage employees. These workers enjoy labour law protection and are also entitled to social security benefits in India.

Within the informal sector, upper tier wage employment comprises workers who are in occupations that require some type of training and skills. As an approximation, we include workers who are employed in one of the following four occupations: professional, technical and related workers (division 0–1, as per the Indian National Classification of Occupations [INCO] of 1968), administrative, executive and managerial workers (division 2, INCO), clerical and related workers (division 3, INCO), sales and service workers (division 4–5, INCO), and production and related workers (division 7–9, INCO).4 Additionally, we also check whether these workers are entitled to de facto benefits, such as meals or housing. All remaining workers, mainly agricultural, construction and other manual laborers, are classified as lower-informal.

In the case of self-employed workers, all workers in non-farm businesses employing 10 or more workers are classified as formal self-employed. This definition is broadly in line with the official criteria used to classify firms in India. These criteria were laid down by the Factories Act of 1948, which demarcates all manufacturing firms employing 10 or more employees and using electric power as formal, and those that fall below these cutoffs as informal sector firms (Besley and Burgess 2004).5 Besides, we also treat all self-employed workers who are into professions that require a high level of skills (division 0–1, INCO) as formal. This category of occupations includes architects, engineers, technologists, physicians and surgeons, and teachers, among others.

Among the informal self-employed, all those who are part of businesses that employ less than 10 workers but at least one hired worker among them are classified as upper informal. These also include workers who are in businesses that employ hired workers but operate from home or from a mobile location. Self-employed workers who are into activities that employ only household workers are treated as lower tier informal. All contributing family workers are also included in this category. This is in line with the classification adopted by the NSSO surveys in India, where they regard enterprises that employ household workers as own-account enterprises. These are the enterprises that form the bottom part of the manufacturing segment in the informal sector (Raj and Sen 2016). We summarise the criteria adopted to classify the workers into six mutually exclusive work status in Table 1.

Our income estimates are derived from the main occupation, even though many individuals may have engaged in multiple jobs. We use the reported annual earnings, which are then converted to real values using the consumer price index at 2004–05 prices. Only individuals who are working and have reported positive cash income are considered for the analysis.

Characteristics of Workers

The shares of each labour work status for all individuals of working age for 2005 and 2012 are presented in Figure 2. The shares look similar between 2005 and 2012, except for notable changes in wage employment. Figure 2 shows that although informal employment makes up the major chunk of the total sample, it saw a slide from 90% in 2005 to 85% in 2012. The decline in the share of upper tier informal employment contributed to the overall drop in the contribution of the informal sector. When we look at each work status separately, we find that formal self-employment remains stable at around 1.5%. Despite the fall in its share over the 2006–12 period, the lower tier informal self-employment remains a substantially large segment in the self-employment category.

The upper tier—the second largest segment in the self-employment category—too finds its share declining marginally during this period. As is evident from Figure 2, formal wage employment reported substantial gains, as the share of workers increased from 9.3% to nearly 14% during the study period. A similar increase in share is also noticed for lower tier informal wage employment. Maintaining its position as the single largest employer, this segment accommodates about 38% of the workforce in the non-farm sector in 2012. Upper tier informal wage employment retains its position as the second largest labour market status, but registered an 8% decline in its share over the 2006–12 period. In summary, we observe significant increase in the share of workers in the formal status, and more evidently in the wage employment category. Evidence also points to the declining importance of upper tier informal sector in both wage employment and self-employment categories.

Figure 3 provides a detailed analysis of the characteristics of the working-age population in each labour market status. We consider four important individual attributes in Figure 3, namely gender, geographical location, levels of education and social group. As Figure 3 illustrates, the share of men’s participation as workers is more—70% of workers are men, and women are under-represented in all labour market states. Our descriptive evidence points to greater preponderance of self-employment and lower tier informal employment among women. Our findings on participation by gender thus lend credence to the existing evidence that women tend to be more represented in the lower segment of the informal sector (Chen et al 2004). Figure 3 also points to geographic inequalities in the composition of jobs. A majority of non-farm workers are of rural origin, constituting about 70% of the non-farm workers. We find significant presence of urban workers in self-employment and in formal wage employment.

The caste-wise breakdown of workers in self-employment and wage employment also reveals some insights as to whether the incidence of informality is confined to certain specific social groups. There is enough evidence in the literature pointing to the significant role of the caste and religious affiliation of workers in sector allocation (Banerjee and Knight 1985; Ito 2009). In line with the available evidence, we also find larger representation of upper-caste workers in the formal sector, compared to lower social groups. On the other hand, the incidence of informality is significantly higher for disadvantaged groups like Scheduled Castes (SCs) and Scheduled Tribes (STs). On the whole, we find that workers belonging to forward castes are more likely to be in formal employment, while those belonging to SC and ST are more likely to be engaged in informal jobs, especially in the lower tier segment of the informal sector.

Education level is a crucial factor aiding the transition from informal to formal employment (ILO 2014). This is clearly evident from Figure 3, where we find that better educated workers are more represented in the formal sector, while the less educated, especially those with no schooling, mostly end up in the informal sector. More than 70% of the formal sector workers have secondary education or above, while a majority of the informal sector workers have only received primary education, or are without any schooling. This finding is consistent with the existing evidence that more educated workers are less likely to be employed in the informal sector (Shonchoy and Junankar 2014). To sum up, our descriptive analysis broadly suggests that informality appears to be mostly evident among workers who are women, less educated, live in rural areas and those who hail from the lower strata of the caste hierarchy.

Up and Down Transitions

We first discuss the patterns of transitions across work status over time, then briefly discuss the possible factors that may explain worker transition. We then conclude with an assessment of income gains or losses during transition across work status. How much movement is there among the work statuses in the non-farm sector in India? We now turn to this issue. We use transition matrices, which allow us to follow individuals over time, exploiting the longitudinal dimension of the data.

The results are reported in Table 2 and also in Figure 4(a), which present the probability estimates, defined as the probability of observing workers in a particular status at the end of the period, conditional on their employment status at the beginning of the period. In general, we observe considerable changes in employment status over the period 2006–12. Close to half of the workers in our sample (47%) change employment status during this period. Overall, the probabilities show that self-employed workers exhibit relatively more fluidity compared to wage workers. It is also evident from the table that there is very little movement of workers from wage employment to self-employment. The findings also suggest that, in general, there is more mobility within self-employment and wage employment than between these types of employment.

Job stability varies considerably across labour market statuses. For the wage employed, there is a lot of stickiness for formal and lower tier informal work statuses. As is evident from Table 2, lower tier informal wage workers report the highest retention rate, followed by formal wage workers. Nearly 73% of the workers who worked in the lower tier informal wage employment—the largest segment of our sample—retain the same labour market status in 2012. The finding of high persistence rates for lower tier informal wage employment perhaps indicates that these workers face significant challenges in changing jobs, due to limited human capital and skills and insufficient working capital, especially for those desiring to move to self-employment. Among those who transition out, very few end up (about 17%) obtaining a salaried job in the upper tier informal sector. The formal salaried workers, who account for 10% of the total workers, also demonstrate higher degree of immobility, with 65% of them preferring to retain the same status.

The most visible transition out of formal salaried employment is that into upper tier informal wage employment. Almost 17% of the formal salaried workers move into the upper tier of wage employment. The upper tier informal wage workers are apparently the most mobile among the wage workers, exhibiting a mixed transition pattern. While 38% chose not to transition out, 32% moved out as lower tier wage workers, 16% as formal salaried workers and 10% as lower tier self-employed workers. Indeed, the higher turnover among upper tier informal salaried workers offers some evidence of upward mobility, showing workers transitioning into formal wage employment. At the same time, the evidence also points to the existence of a significant risk of downward mobility, with upper tier informal salaried workers going into lower tier informal employment, either as wage earners or self-employed.

Turnover rates are highest among self-employed workers, implying that self-employment activities exhibit a lower degree of persistence than salaried jobs. The mobility out of existing status is more pronounced among the formal self-employed workers, who form just 1.3% of the total sample of workers. Nevertheless, they show a rather heterogeneous transition pattern. While those who remain in the status is confined to 29%, 25% experience a downward transition to the lower tier of the informal self-employed and another 9% to the upper tier. We do see some mobility out of formal self-employment into formal salaried jobs (14%), and also to the upper tier and lower tier of wage employment at 11% and 12%, respectively. Separation rates are also very high among the self-employed in the upper tier informal sector. The outflows from this segment are mostly to the lower tier of informal self-employment, indicating a deterioration in their work status.

As Table 2 shows, the probability of transitioning from the upper tier to the lower tier stands at 41%. We also find a high churning rate for workers in the lower tier informal self-employed—the largest segment in the self-employed—accounting for 21% of the workers in 2006. More than half of the workers (51%) in this status opted to transition out. Out of those who chose to move out, 26% saw an upgradation in their status; 14% as upper tier informal wage-employed and another 12% as upper tier informal self-employed. Another 17% ended up as wage-employed in the lower tier of the informal sector. 

We also find striking gender differences in the transition (Figure 4b and c, p 45). Our results show that the degree of mobility is substantially lower among female workers than male workers. We also find that mobility patterns for the male workers are more or less similar to the transition probabilities for the total sample. As is the case with the total sample, we find higher retention rates among self-employed workers and higher rates of persistence among wage workers in the male sample. In the case of female workers, we find very high persistence rates for lower tier informal wage employment and formal wage employment, and they are substantially higher than that of male workers. In the last panel of Figure 4d and e (p 45), we understand transition probabilities of rural and urban workers separately. With the exception of lower tier informal wage employment, turnover rates are much higher in rural areas than they are in urban areas. This is particularly true for formal self-employment, upper tier self-employment and upper tier wage employment.6

Reasons for Transitions

We also carried out a multinomial logit analysis of the determinants of transitions between labour market states.7 Our results do suggest a significant role for education, experience (as captured through age), gender, social group and geographical location in shaping mobility patterns. In line with conventional wisdom, the probability of transitioning into formal employment increases with years of schooling. We also find that older individuals have a higher probability of transitioning from the lower tier informal sector to formal wage employment, indicating the significant role of experience.

We find a definite gender pattern in transitions as males are more likely to move into wage employment while females are more likely to stay in self-employment. This is more or less in line with the existing evidence that women are under-represented in salaried work as compared to self-employment in India (Neetha 2010). Our results also show that urban workers are more likely to experience upward transition. For instance, the likelihood of outflows from the informal sector, especially from the upper tier of the informal sector to the formal sector, is significantly higher among urban workers than among rural workers. In line with the existing evidence in the literature, the likelihood of transition from any informal job status to formal job status is significantly higher among workers belonging to the forward caste category than among workers from backward caste categories.

Using a job ladder figure capturing the mean earnings of workers in different labour market statuses (as in Figure 5, p 47), we probe whether mobility is systematically associated with changes in earnings.8 The significantly higher wages for formal wage employment clearly explain why the formal wage workers tend to stay longer in the same status and turned out to be the ones most reluctant to leave the existing status. The finding also supports the traditional theory that formal salaried workers are paid significantly higher than their informal counterparts. Our results also endorse heterogeneity within informal employment, as we find the self-employed are often subject to lower wages, compared with the salaried ones.

In addition, we find that upper tier informal self-employed workers have somewhat higher earnings than formal self-employment workers, which may suggest that upper-tier jobs carrying a significant premium compensate for the job security and other benefits of formal wage work, as has been found in the Latin American case (Maloney 2004). We also separately investigated the effect of the transitions on workers’ earnings, which clearly suggests a significant rise in earnings for those who have made favourable transitions; for example, transitions to formal status.9 These gains are also evident for workers who have experienced favourable transitions even within the informal sector.


This paper examines the nature, magnitude, direction and implications of employment transition patterns in India. We find significant worker flows across different labour market states, although with stricter entry into formal than informal employment. Overall, the transition probabilities suggest relatively more fluidity among self-employed workers than wage workers. The findings also point to relatively strong segmentation between wage employment and self-employment. Our transition probabilities suggest that workers in formal self-employment are more likely to remain in that state or move into lower tier self-employment. Regarding the mobility pattern of informal self-employed workers, we do not find any significant movement of workers from informal self-employment to formal self-employment.

With regard to wage employment, formal wage employment shows a high degree of persistence, endorsing the prevailing argument that workers regard formal wage employment as the most desirable labour market state, as it is intrinsically more secure and stable than that in the informal sector. This perhaps points to the possibility of formal employers using an informal employment relationship as a screening device to overcome information asymmetries and test workers’ abilities before providing formal contracts, as some of the studies on sub-Saharan Africa suggest (Danquah et al 2019). Another noteworthy finding is the high persistence within the lower tier of informal wage employment, with about three-fourths of the workers in this segment not making the transition upwards. We also find that the degree of mobility is substantially lower among female workers than male workers, and much higher in rural areas than in urban areas.

Our results suggest that lower tier informal workers, whether in self or wage employment, have limited upward transition possibilities, and are in a “dead-end” work status. The fact that a large part of India’s working poor remain in poorly-paid jobs—even over the seven years that our study covers—is a matter of serious policy concern and may be related to the wider phenomenon of “jobless growth” in India, as well as the lack of skills and the provision of education for many of India’s lower tier informal workers.


1 The approach used in Danquah et al (2019) takes the observable characteristics of jobs as the criteria for classifying informal jobs as upper tier or lower tier. However, there have been other approaches that have been used in the literature, such as classifying upper tier informal jobs as those jobs that workers choose of their own accord, and lower tier informal jobs as jobs which workers end up doing as they are rationed out of formal and upper tier jobs (see Fields (2007) for a review).

2 An expansion of this analysis, including farmers (under lower tier informal self-employment), and unemployment as additional destination states is available on request.

3 Many studies have argued that using 240 hours as the cut-off helps in differentiating between individuals who have spent considerable time performing paid work and those who do not (Lei et al 2019). Further, this definition also maintains comparability with the definition employed in the NSSO employment surveys that consider subsidiary work status (worked greater than 30 days) to compute employment rates.

4 All these occupations require some prior skill, and are therefore not “free-entry” occupations (Howard and Prakash 2012).

5 One drawback of the IHDS data set is that it does not provide information about the number of workers employed by firms. Hence, using the information on the total wages paid to hired workers, we arrive at the number of hired workers. We first compute the average wage in each National Industrial Classification industry group from the total wage bill, for each round of IHDS. We then estimate the number of hired workers by dividing the total wages paid to hired workers by the average wage.

6 Our findings also point to marked differences in transition probabilities between workers from metropolitan cities and non-metropolitan cities. We find that metro workers demonstrate high degree of mobility and demonstrate trends closer to the ones observed for the total sample. In the interest of brevity, we do not report the results here but they are available from the authors upon request.

7 Due to space constraints, the results are not presented here but are available from the authors upon request.

8 An important caveat here is that measurement errors are higher with self-employment earnings than wage earnings, so that the earnings across the two categories may not be directly comparable.

9 In the interest of brevity, we do not report the results here but they are available from the authors upon request.


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Updated On : 23rd Nov, 2020


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