Informalization of Industrial Labour in India: Are labour market rigidities and growing import competition to blame?

Since the 1980s, there has been increasing informalization of industrial labour in India. It has taken two forms: rising share of the unorganized sector in manufacturing employment and informalization of the organized manufacturing sector itself through subcontracting and use of temporary and contract workers. The paper investigates whether and how far labour market rigidities and increasing import competition are responsible for the increasing informalization on industrial labour in India. An econometric model is estimated for this purpose using unit level data of the NSS 61st round employment-unemployment survey for 2004-05. The estimated model explains the casual worker – regular worker dichotomy in manufacturing. The results show that labour market reforms tend to increase the creation of regular jobs, while import competition tends to raise casual employment among workers with education above primary. The results also show that education enhances the probability of getting a regular job.