The dynamics of employment generation in post-reform India

Abstract

The paper argues that India’s occupational structure is in a transitional phase. Employment growth is driven by non-agricultural employment and more specifically rural non-farm employment. Not surprisingly the drivers of rural and urban non-farm employment are different and likely to diverge further in the near future. As is well known informalisation has emerged as a dominant trend in recent labour market performance. But less well known is the result that formal and informal labour markets have very different contractual dynamics. Therefore, the formal labour market is overwhelmingly dominated by regular employment and informal employment by selfemployment and, equally importantly, this behaviour is remarkably similar across geographies, rural and urban. Our analysis would suggest that formal and informal labour markets are organically linked not only in the same geography but also in ways which have probably begun blurring differences between geographies. Sectoral drivers, educational requirements and demand-supply dynamics and not labour market regulations would appear to explain the choice capital makes between formal and informal employment.