AICyberLex Nexus

Keywords: Social Security, Unorganized labor, PLFS, NSSO, India

Introduction

The informal sector can be defined as a unit that is primarily owned and continuously functions by individuals or groups. The informal economy is an unregistered workforce that includes farmers, agricultural laborers, and self-employed workers. Moreover, this study defines informal workers based on social security benefits. Those workers who get social security benefits are called formal workers, and without social security benefits, they are called informal workers; according to ILO (), India has the highest proportion of informal laborers, with 80% of the working population. As per the PLFS 2017-18 data, approximately 92.4% of the workers are excluded from any written contract, paid leave, and other security benefits in the Indian economy. Because of this, the workers are prone to vulnerabilities and economic shocks. The COVID-19 pandemic has further worsened the situation and has urged us to redesign social security schemes. Hence, informal labor force participation is high after covid 19.

The Indian government has implemented various security schemes, such as Pradhan Mantri Shram Yogi Maan Dhan Yojana (PMSYM), Atal Pension Yojana (APY), and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) to extend protection from the shocks such as unemployment, insurances, and old age pensions. Despite the execution of these schemes, enrollment and utilization remain a concern. There exists a massive gap in the awareness of these schemes among the informal workers, or they find it challenging to navigate the process involved. As a result, many workers are excluded from social security benefits.

In this context, this study aims to assess the social security schemes aimed at extending social benefits and protection to informal laborers by examining the enrollment rates of Pradhan Mantri Shram Yogi Maan Dhan Yojana (PMSYM) and identifying the factors influencing the changes through the most recent participation survey by National Sample Survey Office (NSSO) Periodic Labor Force Survey (PLFS).

This study is divided into five sections. The second section briefs the review of the literature, followed by section three, which explains the data and methodology. It explains the sources of data and methods used for analysis. Section four explains the results and discussion. The last section concludes this study.

Brief Literature review

Indian economy is predominantly in the informal sector, with over 90% of workers including casual laborers, self-employed workers, and unorganized enterprises. It contributes to almost half of India’s economic output and more than three-fourths of employment. The sector is broadly divided into agricultural and non-agricultural activities. Despite being high in proportion, the industry is vulnerable to economic shocks because of low wage rates, lack of social security, and access to benefits and social protection. (NCEUS, 2007). (Chen, 2012) provides a foundational framework for the crucial need to extend social security to this sector. Because of low and irregular wages and poor working conditions, the workers are often excluded from security mechanisms such as pensions, health care, and insurance. (ILO, 2018).

To overcome the problem, the government of India has provided various schemes to protect the unorganized sectors from economic shocks. Schemes such as Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM) for pensions, Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) for life insurance, and Atal Pension Yojana (APY) for retirement benefits. (Ministry of Labor and Employment, 2019).

The existing literature reveals that the enrollment rates in the Social Security system are significantly low. Only a few eligible workers enroll in these schemes. Due to social norms and lower literacy rates, women and older workers will likely not enroll in the schemes. (Durgam 2012). The primary reasons are lack of awareness, documentation, lengthy procedures, and financial constraints. Less than 10% of the informal workforce is covered by any security scheme provided by the government of India (Nair, 2019). Workers in rural areas, compared to urban areas, are less covered under any schemes, the primary reason being less access to information and finance. A few studies have also shown that regional disparities contribute to the unequal distribution and lack of enrollment in security schemes. (Singh & Sharma 2020) found a better enrollment rate in the states of Kerala and Tamil Nadu compared to other states like Bihar and Uttar Pradesh; the primary reason associated with this is the lack of awareness campaigns and institutional frameworks.

The complexity lies behind the lack of transparency, complex eligibility criteria, and insufficient outreach for lower enrollment rates. The study has argued that redesigning the schemes simplifies the process and improves digital literacy for efficient allocation (Kannan, 2021) Further extending the study (Sakthivel & Joddar, 2006) observe the trends, patterns, and social security coverage for the unorganized sector in India, highlighting the gaps in coverage and identifying the gaps that must be addressed.

Studies have identified that the primary reason for the lack of enrollment is the worker's perceptions of the schemes. Roy and Dutta (2021) conducted an interview and observed that the informal workers were skeptical about the government schemes based on their poor performance and corruption. The COVID-19 pandemic has worsened the situation, leading to a renewed focus on social security. The literature shows that the workers were severely affected due to a lack of social security protection during lockdowns and economic downturns (Dev & Sengupta, 2022). The pandemic has urged the need for a robust social security framework for the unorganized sector in India.

Barrientos's (2011) work highlighted that social transfers have reduced poverty and income inequality. Holzmann and Jorgensen (1999) explain how the scheme has provided a vital safety net, helped reduce economic shocks, and protected impoverished workers. A case study on Brazil, India, and Ethiopia by Barrientos and Hulme (2009) underscores the positive impact of the security schemes on poverty reduction, health, education, and social inclusion. ILO (2017) revealed that countries with universal security systems have achieved better economic growth, resilience, and human development outcomes, covering evidence from 100 countries globally. Despite introducing these schemes, disparities exist between policy objectives and actual outcomes. (Jhabvala & Sinha, 2018).

Though there are many studies on the related topics, scares of literature discuss the particular issues using recent PLFS data. Hence, to fill the gap, this study tries to (i) Examine the trends and patterns of labor force participation in the unorganized sector in India. (ii)To assess the relationship between the social security schemes (PMSYM) and labor force participation in the unorganized sector in India.

Data and Methodology

The study utilizes secondary data from the Periodic Labor Force Survey (PLFS) by the National Sample Survey Office (NSSO) from 2017-18 to 2022-23. Secondly, the enrollment rates for the Pradhan Mantri Shram Yogi Maandhan (PMSYM) by the Government of India, Ministry of Labor and Employment from the same period to assess the effectiveness in providing social security to the informal labor forces across the Indian states. The analysis focuses on state-wise labor force distribution by observing the trends in labor force participation and the enrollment rates under the PM-SYM scheme. The paper also showcases a pattern of the informal labor force, disaggregating it by gender, religion, place of residence, social group, and occupation. A table is also presented representing the linkages between the informal labor force and the rate of enrollment (measured in percentage) over the years.

Results and Discussion

Trends of Labour Force Participation

Figure 1 illustrates the trends of labor force participation in the unorganized sector in India from 2017 to 2023. The trend showcases distinct patterns for males, females, and the total population of informal workers. The overall informal labor force participation gradually increased from 72.04% in 2017-18 to 77.74% in 2022-23. There is a significant shift in the female labor force participation rate; it started at 70.06% in 2017-18 and witnessed a decline in 2020-2021, later rapidly increasing to 80.13% in 2022-2023.

Figure 1: Trends of labor force participation in the unorganized sector in India

Source: Author’s plot using PLFS data.

The overall trend showcases an increase in the informal labor force participation of both males and females after 2020-21 due to the impact of the COVID-19 pandemic, which began in early 2020, resulting in losses in the formal sector. There has been a shift in social and gender roles, with women stepping into economic activities due to necessity and providing household incomes. The other reason associated with the increase in female labor force participation is the government schemes aimed at women’s employment in the unorganized sector. This period is crucial for policymakers to understand and design policies that address the structural challenges men and women face in the unorganized sector.

Patterns of labor force participation in the unorganized sector

This section of this study presents the labor force participation patterns in the unorganized sector in India across demographic and socio-economic categories from 2017-18 to 2022-23. The breakdown of the detailed analysis is explained below.–

Firstly, the estimation of labor force participation by gender indicates that the share of labor force participation among males has declined, corresponding rise in female labor force participation over the years from 2017-18 to 2022-23. The male participation in 2017-28 was 81.4%, which declined to 73.17% in 2022-23, suggesting a shift in the working pattern. On the other hand, female labor force participation increased from 18.6 in 2017-18 to 26.83 in 2022-23. The factors associated with the increase are the dynamic changes in socioeconomic and gender norms post-COVID-19, where female laborers stepped in to help their partners manage their households by earning additional income. It indicates the impact of added workers on household management due to the covid-19 pandemic.

The result by the place of residence is evidenced as per the expectation. There has been a consistent pattern in the rural workers in the informal sector from 2017-18 at 58.68% to 61.03% in 2020-21, then increasing to 73.17% in the year 2022-23; the constant trend can be influenced by the increasing participation in the rural economy due to migration or any other economic shocks (see Table 1). In contrast, the urban sector has seen a decreasing share over the years; the labor force participation in 2017-18 was 41.32%, and 26.81% in the year 2022-23; this may indicate that the urban workers have moved away from the informal sector due to higher level of education and standard of living. These factors restrict them to working in the informal sector and searching for jobs in the formal sector. This is possible in the urban sector compared to the rural sector because of heavy infrastructure development and industrialization.

Table 1: Patterns of labor force participation in the unorganized sector in India.

Source: Author’s estimation using PLFS data.

Religion plays a vital role in the Indian labor market. It is evidenced that out of all Indian labor force participation, the Hindu religion holds the highest share (close to 80 percent), followed by Muslim, Christian, and Other religions (see Table 1). The share of Hindu labor force participation in the informal sector has increased from 80.8 percent to 82.5 percent during 2017-18 and 2021-22. Further, the share declined to 79.32 percent, corresponding rise in the share of the Muslim labor force to 15.29 percent during 2022-23. The possible reason for the higher proportion can be the majority of India’s Hindu population. The participation of Muslims increased from 13.33% in 2017-18 to 15.29% in 2022-23, with a significant growth from 2020-21. The participation rates for Christians fluctuate between 2.81% and 2.21%. The share of other religions also varies from 3 percent to 3.5 percent during the same year (see Table 1).

With religion, the social group also plays a vital role in labor force participation in India. The group is divided into four categories: Scheduled Tribes (ST), Scheduled Castes (SC), Other Backward Classes (OBC), and Other Categories. It is noted that STs Share in labour force participation slightly increased from 8.75% in 2017-18 to 11.11% in 2022-23. SC’s participation has remained constant throughout the years, with a rise of 2 percent to 3 percent (see Table 1). OBC holds the highest share of labor force participation in the Indian informal labor market as compared to other social groups.

Furthermore, the estimation based on the standard of living reflects that the share of labor force participation in the informal sector continuously declines as we move from a lower standard of living to a higher standard over the years. This means that the higher share of labor force participation in the informal sector belongs to MPCE Quintile 1, and the lowest share belongs to MPCE Quintile 2. The MPCE refers to the monthly per capita expenditure. The quintile 1 represents poorest households, and the quintile 5 represents the household with the highest expenditure. The pattern shows that the households with the poorest quintile (1 and 2) are engaged more in the unorganized sector than the other quintiles. These showcase the better-off groups who participate in the formal sector of the economy.

It is evidenced from the estimation based on the National Industrial Classification (NIC) code that the non-manufacturing and service sectors hold the highest position in terms of labor force participation in the informal sector in India (see Table 1). This section includes all the sectoral employment, i.e., Agriculture, Manufacturing, and Non-Manufacturing sectors. The agricultural sector includes both farming and non-farming activities. There has been a rapid growth of informal workers in this sector from 4.18% in 2017-18 to 26.35% in 2022-23. The share rapidly increased during the covid-19 period because the male population (those who migrated to urban areas for work) returned to their native place. They started working in the agriculture sector due to the unavailability of employment opportunities in another sector in rural India. The manufacturing sector consists of more informal workers, but it seems to be decreasing at 11.56% in 2022-23. The non-manufacturing sector has witnessed fluctuations indicating the shifts from economic shocks.

Finally, the occupation-wise estimation evidenced the highest share of the informal labor force in lower occupations compared to the higher occupations. This result is as expected. The elementary occupation has increased from 41.13% in 2017-18 to 62.15% in 2022-23, given that low-skilled jobs dominate the elementary occupation. The plant and machine operations have decreased from 10.54% to 6.66%, reducing participation rates in this sector. The higher occupations, such as administrators, professionals, and technicians, have absorbed the lowest informal labor force participation because of the formal nature of the job.

Table 2: Linkages between the labor force in the unorganized sector and enrollment rates in the PM-SYM scheme (in growth rate)

Source: Author’s estimation using PLFS and Ministry of Labor and Employment data.

The above table represents the metrics for Indian states and Union territories. The first section represents the growth rate in Labor Force Participation (for the unorganized sector), and the second section represents the growth rate of Enrollment in the Pradhan Mantri Shram Yogi Maan-dhan scheme.

The state Mizoram has witnessed an increase in the labor force participation in the informal labor market, with a growth rate of 83.08% in the year 2018-19; however, compared with the enrollment rates, there exists a considerable gap with a -72.73%. These suggest that despite the better economic condition of the state, the labor force is not fully aware of the social security benefit and underutilizes the scheme. Sikkim also had the highest number of informal labor force participators in 2018-19. However, unlike Mizoram, the state also had a positive growth rate for the enrollment of members under PM-SYM. The state achieved this through various awareness campaigns, robust strategies, and better administration. One of the reasons could be the geographical nature of the state. These states are hilly areas with fewer industries, which creates enough formal employment opportunities.

Observing the current trend from the year 2022-23, the data indicates that Chhattisgarh significantly improved in workforce participation, and there is a significant growth in enrollment rates. Through various local government initiatives and strategies, other states such as Gujarat and Uttar Pradesh have achieved significant growth in labor force participation and enrollment rates.

Contradicting the positive growth rate states such as Nagaland have witnessed a declining growth trend in labor force participation and negative growth in enrollment rates from 2021-22 to 2022-23. This indicates that despite the increase in the labor force, the state could not bridge the gap between the social security scheme and the workforce.

The table also highlights that enrollment rates have increased despite the steady growth in the informal sector. States such as Goa, in the year 2021-23, have increased labor participation with a growth rate of 17.36% and an enormous increase in PM-SYM. These figures indicate the success of the campaign. Punjab has not witnessed any shift over the years. However, a high enrollment growth rate has ensured that the workers are aware of the protection extended by the government.

General observation concludes that there is no direct relationship between labor force participation and enrollment rates. States like Goa, Punjab, and Puducherry have ensured that workers are enrolled in the schemes despite a moderate increase in labor force participation. However, the analysis of the recent year reveals that various other factors, such as economic conditions, effective government initiatives, and robust awareness, influence enrollment rates.

Conclusion and recommendations

The literature and empirical study indicate that a well-designed social security system scheme is critical in eradicating poverty, increasing economic stability, and extending protection to workers, especially the informal workers in the unorganized sector. These include financial protection, cash transfers, and social insurance that not only help vulnerable workers but act as long-term security for better economic growth of any economy.

The empirical analysis used in this study focuses on informal labor force participation and the effectiveness of social security measures; Pradhan Mantri Shram Yogi Maandhan (PM-SYM) reveals diverse variations among different states of India. States like Gujrat, Uttar Pradesh, and Chhattisgarh exhibit increased labor force participation and improved enrolment rates. In contrast, states like Nagaland, Daman, and Die witnessed negative growth because of reduced employment facilities, out-migration, and lack of awareness programs. The study also reveals that despite stagnant growth in labor force participation in states like Goa and Puducherry, the enrolment rate in the PM-SYM is enormously higher. They are indicating that the government was successful in achieving the desired target. Factors such as gender, religion, occupation, and standard of living are the various factors that determine labor force participation.

The findings suggest no direct correlation between labor force participation and enrollment rates. Several states have exhibited contradictory results, indicating that various factors influence the labor force, which will further impact the enrollment rates of the scheme. Policymakers must identify these and incorporate them while designing the scheme to achieve tremendous success and extend social protection to the informal workers of the unorganized sector in India.

References

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