wl-7568-Labour Market Inequality in India Over Three Decades

We examine the evolution of labour market inequality in India over the period 1987/88-2021/22, using a multi-tiered approach to labour markets. In the approach, we differentiate between self-employment and wage-employment and between formal, upper tier informal, and lower tier informal jobs. We find that three fourths of India’s workers are in lower tier informal jobs, and this proportion has not changed significantly over three decades. We also observe an increase in the share of upper tier informal jobs, mostly due to an increase in the share of upper tier informal jobs in wage-employment. On the other hand, the share of formal jobs in total employment has barely increased in 1987/88-2021/22. Further, we find that females and less educated workers occupy the lower tier of the labour market. There are also large inequities in earnings for workers in the different tiers of the labour market. Finally, we note the stagnation in the share of wage employment in total jobs, in spite of rapid economic growth, which is not consistent with the global trend where wage employment share increases with economic development. We argue that this is due to the lack of a vibrant formal wage employment sector along with the problem of a “missing middle” in manufacturing.