Informal employment

Topic: Employment, Unemployment and Informalisation · NCERT: Beyond NCERT

Meaning

Informal employment is any job, paid or unpaid, that is not registered, regulated or protected by law. The worker has no written contract, no paid leave and no social security. This is true whether the employer is a formal firm or an informal one. The ILO 17th ICLS (2003) defines it this way: "all remunerative work (both self-employment and wage employment) that is not registered, regulated or protected by existing legal or regulatory frameworks". It also covers unpaid work in an income-producing enterprise [3].

It matters because about 90% of India's workforce is in informal employment. So for most Indian workers, growth has not brought job security or social protection.

Formula: share of informal employment (%) = (informal jobs in both the formal and informal sectors ÷ total employment) × 100

Explanation

Job-based, not enterprise-based

• Two ways to measure informality:
• Informal sector: looks at the enterprise, meaning small, unincorporated (not a company), unregistered units mostly owned by households. This is the ILO 15th ICLS, 1993 definition.

• Informal employment: looks at the job, meaning whether the worker has a contract, paid leave and social security. This is the ILO 17th ICLS, 2003 definition.

• The 2003 shift: the 15th ICLS looked at the production unit. The 17th ICLS looked at the job [3].

• ICLS (International Conference of Labour Statisticians) is organised by the ILO. It sets global rules for labour statistics.

• Example: a temporary computer operator in a government office.

• The employer (the government) is formal.

• The job has no contract and no PF, so the job is informal.

• NCEUS (National Commission for Enterprises in the Unorganised Sector, also called the Arjun Sengupta Commission) adopted this job-based view for India.

Who counts as informally employed

• Everyone working in informal-sector units. This covers own-account workers, unpaid family helpers and hired workers in small unregistered units.
• Workers in formal firms without protection, such as:
• contract labour: workers hired through a contractor to work for a principal employer (the firm where the work is actually done). They get lower wages and little job security.
• casual wage labour: workers paid by the day or by the task, with no promise of work tomorrow.

• piece-rate outworkers: big firms outsource work to homes or tiny units and pay per piece made. The big firm saves on wages and avoids paying social security.

• What these workers lose: they can spend 10-20 years without maternity benefit, PF (Provident Fund, a savings fund paid into by both employer and employee), gratuity (a lump sum paid on leaving after long service) or a pension.

Worked example: the exam trap

• An economy has 100 workers.
• 80 work in the informal sector, and all these jobs are informal.

• 20 work in formal firms, but 10 of them have no contract or PF.

• Informal employment = (80 + 10) ÷ 100 × 100 = 90%.

• Informal sector's share of employment = only 80%.
• Lesson: informal employment is always equal to or larger than informal-sector employment, because it also counts unprotected jobs inside formal firms.

What makes it rise or fall

• Rises when:
• organised firms operate as unorganised units to evade taxes and labour laws;
• firms hire through contractors or outsource piece-rate work instead of hiring permanent staff;
• large employers close and workers are pushed out (for example, the Ahmedabad mill closures);

• compliance costs (money and time spent on registration, returns, PF and ESIC contributions) push small firms to stay small on purpose or hide workers.

• Falls when (formalisation):

• GST registration: firms register to claim input tax credit (a set-off for tax already paid on inputs), so they enter the tax net;
• digital payments leave a record of each sale;
• EPFO/ESIC enrolment gives workers PF, pension and health cover;
• labour laws extend social security to fixed-term, gig and platform workers.

In India

• Scale:
• About 89% of workers were informal in 2019-20.
• India has more than 50 crore workers, and almost 90% of them are in the unorganised sector (2025) [1].

• Planners expected informality to shrink as the economy grew. It did not.

• Measurement: NSSO/PLFS surveys classify workers as self-employed, regular wage/salaried or casual wage labour. Informality is judged by whether the job has a contract and social security, not only by the worker's status.

• Casual share vs informality:
• The casual share of workers peaked at 31.8% in 1993-94 and fell to 19.9% by 2023-24.

• Informality still stayed near 90%, because many regular and self-employed jobs also lack contracts and social security.

• Legal framework (4 Labour Codes): 29 labour laws were merged into 4 Labour Codes [1].

• Code on Social Security, 2020 merges 9 laws [1]. It:
  • opens ESIC (Employees' State Insurance Corporation, which gives medical care and sickness cash benefits) to all sectors, including unorganised, gig and platform workers [1];
  • removes the minimum service rule for gratuity for fixed-term employees, who get the same social security as permanent staff [1];
  • creates a social security fund for the unorganised sector [1].

• OSH Code, 2020 merges 13 laws, including the Contract Labour (Regulation and Abolition) Act, 1970 [1].

• e-Shram: a national database of unorganised workers, launched in 2021 [1].

• Each worker gets a Universal Account Number (UAN) on a self-declaration basis [2].
• Registrations passed 30.95 crore by 22 July 2025 [2].
• Women made up 53.77% of enrollees (June 2025) [1].

• The e-Shram "One-Stop-Solution" (launched 21 October 2024) links workers to many social security schemes [2].

• Voluntary pension schemes:

• PM-SYM pays ₹3,000 a month after age 60 and had 51.35 lakh members (May 2025) [1].

• Atal Pension Yojana had 7.25 crore subscribers (December 2024) [1].

• Coverage outcome: social protection coverage rose from 19% (2015) to 64.3% (2025), or 94.3 crore people, as recorded on the ILO's ILOSTAT database [1].

• Caveat: this counts anyone covered by at least one cash-based, legally backed scheme. That is not the same as a formal job with a contract [1].

• Social angle: most workers from SC, ST and backward communities are in the unorganised sector and also face social discrimination.

Don't confuse with

• Informal sector: defined by the enterprise (unregistered, unincorporated unit; 15th ICLS, 1993). Informal employment is defined by the job (17th ICLS, 2003) and can exist inside formal firms and government offices.
• Casualisation: a shift in the status of work towards daily or task-based wage work. Informalisation is a fall in the quality of work (loss of contract and social security). The casual share fell after 1993-94, but informality stayed near 90%.
• Unorganised sector: the Indian term (Class 10) for small, scattered units mostly outside government control. It is close to the informal sector, not to informal employment.
• Social protection coverage (64.3%, 2025): a person covered by even one scheme counts as covered [1]. That person may still be in informal employment with no contract.

Prelims Hooks

• Informal sector = enterprise-based (ILO 15th ICLS, 1993). Informal employment = job-based (ILO 17th ICLS, 2003) [3].
• A temporary computer operator in a government office with no contract or PF is in informal employment, even though the employer is formal.
• Informal employment share ≥ informal sector share. In the worked example, the two figures are 90% and 80%.
• About 89% of workers were informal in 2019-20. The casual share peaked at 31.8% (1993-94) and fell to 19.9% (2023-24). "Casualisation has risen steadily for five decades" is false.
• e-Shram (launched 2021) gives a UAN on self-declaration and passed 30.95 crore registrations (July 2025) [1][2].
• Code on Social Security, 2020 merges 9 laws. The OSH Code merges 13 laws, including the Contract Labour Act, 1970. In total, 29 laws became 4 codes [1].

Mains Points

• Growth without decent work (GS-III):
• About 89-90% of workers remain informal (2019-20; 2025) despite decades of growth [1].
• This weakens the ILO's decent work pillars: employment, rights at work, social protection and social dialogue. Decent work is part of SDG 8 [3].

• Link this to jobless growth, weak manufacturing and the dual labour market.

• Formalisation: carrots vs sticks:

• GST, digital payments, Udyam, EPFO/ESIC and e-Shram pull workers into the formal net, and coverage rose to 64.3% (2025) [1].
• But compliance costs can push MSMEs to hide workers or stay below size thresholds.
• EPFO net additions (1.29 crore in 2024-25) mix new jobs with the registration of old jobs [1]. So a rise shows better job quality, not the same rise in job quantity.

• Suggest simple thresholds, state-paid contributions for poor workers and UAN-based portability.

• The social cost (GS-I/GS-II link):

• After the Ahmedabad mill closures, over 80,000 permanent and 50,000 non-permanent workers were pushed into informal work.
• The results were poverty, children taken out of school, riots and suicides, and a shift in who earned money at home.
• Together with SC/ST concentration in the unorganised sector, this makes labour reform a social justice issue too.

Related concepts

• Casualisation of workforce
• Informalisation
• Informalisation of the organised sector
• Contract labour
• Social discrimination in the labour market
• Formal employment
• Formalisation of the economy
• Decent work

Read more

• Casualisation, informalisation and formalisation