India’s Informal Economy: 400 Million Strong, Little Or No Access To Workplace Benefits

Consider this: There are 400 million Indians with no access to workplace benefits, such as social security, health insurance or unemployment insurance, a number higher than the population of the United States and Canada combined, according to a Delhi-based group of economic researchers.

So, as the United States grapples with growing income inequality, it takes a country like India to put some of those economic and working realities into a global perspective.

Most of these people are working, but they’re not considered employed because they draw incomes from odd jobs and domestic and agricultural work, often paid by employers hiring illegally to avoid taxes. And because these workers aren’t recognized as working, they lose the benefits, putting immense pressure on governmental or nonprofit social services to take up the slack, especially as these workers age.

“Persons engaged in unseen work are, in a sense, some of the most deprived and vulnerable categories of those denied access to decent work,” says the India Exclusion Report 2013-14, which will be officially released Wednesday by the Delhi-based Center for Equity Studies, a nonprofit dedicated to economic research and advocacy.

The report says India’s official labor force participation rate (defined as anyone who is working or actively seeking on-the-books employment) for working-age women has declined considerably since 2005, from nearly 30 percent down to about one in five.

Meanwhile, the percentage of India's men officially recognized as working has remained a flat 55.6 percent. By comparison, economists in the United States have been ringing alarm bells about a total labor force participation rate of 62.8 percent, a 36-year-low. The U.S. has not seen a participation rate as low as India’s since the country began tracking the data in the early 1940s.

A more disturbing trend is that despite India’s solid average annual economic growth in the high single digits since the late 1990s, the number of jobs created between 2005 and 2010 averaged 2.7 million a year. That’s far below the needs of the 15 million Indians that enter the labor force every year. Part of the problem: Automation in agriculture has reduced the number of low-skilled workers needed in this nation of farmers.

India’s persistent employment problems mean tens of millions with modest to high skills seek work abroad. Commonly known as NRIs – Non-Resident Indians – tens of millions of Indian workers seek jobs overseas in order to send a lifeline of income back to family. The phenomenon is so immense that NRI affairs has its own ministry. The country benefits economically from the remittances NRIs send home, estimated at $71 billion in 2013, according to the World Bank.

This has created tensions with countries like the United States, where critics point out that the flood of Indians coming in to work in IT under guest worker programs is driving IT wages down and shutting out opportunities for America's computer science college graduates.

In the Middle East, Indians (and people from other labor-exporting countries like Pakistan, Bangladesh and the Philippines) are often viewed by locals as claiming entry-level job opportunities from Arab youths, especially younger women who are being encouraged in Saudi Arabia to replace guest workers in jobs such as retail. NRI defenders in the region say they work harder and are more dependable than young locals, a refrain commonly heard among U.S. employers that use guest workers, or hire illegally.

But hundreds of millions of Indians at home don’t have the option to find a lifeline from an employer abroad – being a guest worker requires some set of marketable skills, and it can cost hundreds of dollars in recruitment fees, visas and travel for even the most meager job.

This year’s India Exclusion Report 2013-14, which can be accessed here, shows that India has a very long way to go to meet the demands of its labor force.