Informalisation, unemployment and government

Workplaces are either formal or informal:

• The formal (organised) sector includes all public sector establishments and private establishments that hire 10 or more workers. Their workers get social security (such as provident fund and pension) and are protected by labour laws: they cannot be fired without reason.
• The informal (unorganised) sector includes everyone else: farmers, agricultural labourers, owners of small enterprises and the people working in them, own-account workers (self-employed people who hire nobody), and casual workers outside agriculture. They have no regular income and no protection.

The informal sector is by far the bigger one. In 2019-20, only 59 million of 535 million workers (about 11 per cent) were in the formal sector.

A person is counted as unemployed if he or she is not able to get even one hour of work in half a day, while willing and able to work. There are three main kinds:

• Open unemployment: people actively looking for work but finding none, often in cities.
• Disguised unemployment: more people working on a farm than are actually needed. If some left, output would not fall.
• Seasonal unemployment: work is available only in certain seasons (such as sowing and harvest), and people are idle in between.

How does the government create jobs?

• Directly: by employing people in its own departments and public enterprises.
• Indirectly: when public enterprises grow, they buy from private firms, which then hire more workers.
• Through employment programmes, such as MGNREGA (the Mahatma Gandhi National Rural Employment Guarantee Act), which guarantees 100 days of paid work a year to every rural household that asks for it.

Meanwhile, outsourcing and home-based work are making more jobs informal.