What Determines the Dichotomy between Formal and Informal Employment: Evidence from Maharashtra, India

Abstract

The main purpose of this paper is to examine the emerging dynamics of formal and informal employment in the context of Maharashtra. Using the unit-level records from the recently published Employment and Unemployment Surveys (EUS) of the National Sample Survey Organisation (NSSO) in 2011–12 and various rounds of Periodical Labour Force Surveys (PLFSs), we examine the nature and patterns of formal and informal employment. Also, we investigate the role of personal, household, and labour market characteristics in shaping the dichotomy between formal and informal employment in Maharashtra. The findings of the paper suggest that the wage gap between formal and informal employment is greatly influenced by individual and employment characteristics such as gender, marital status, years of schooling, technical education, vocational training, work experience, and industry of work. In addition, the paper also finds evidence for the marginalisation of women from the labour market, the enormous size of women in unpaid domestic duties, the lack of adequate coverage of formal employment in the rural sector, wage disparity, and the burgeoning size of informal employment. From a policy perspective, the paper suggests fostering inclusive economic growth by facilitating greater participation of women in the labour market and increasing the coverage of formal employment, which is crucial for attaining a decent living standard.