Trajectories of labour market transitions in the Indian economy

Abstract

The Indian economy, despite registering high growth, is characterised by a persistent and vast informal economy. Using it as an illustration, we draw lessons for characterising labour markets in contexts of high informality. We employ a group-based statistical modelling method to identify whether there exist systematic patterns in the high volume of worker transitions across different employment arrangements. Using panel data for eight points between 2017 and 2019, we identify seven dominant labour market trajectories. The trajectory capturing stable formal salaried employment, with highest average earnings, accounts for only 6.7% of the sample. None of the dominant trajectories denote a job ladder from informal to formal work, and the sorting of individuals into informal trajectories is far from voluntary, indicating an existence of formal and informal segmentation. The most populous trajectory, comprising 38.4% of the sample, with second highest average income (although half of that of the formal salaried trajectory), is stable self-employment, followed by the trajectory representing transition within different forms of informal wage work at 27.2%. Most trajectory groups associated with informal wage arrangements have high flux, indicating lack of stability. Furthermore, trajectories associated with informal wage employment have even lower earnings than those with informal self-employment. Far from suggesting a desirability of informal self-employment, this is indicative of a breaking down of the expected voluntary transition from self to wage employment in the transformation process. Additionally, access to trajectories is stratified along various correlates, especially caste. Caste hierarchy operates most starkly at the node of accessing the trajectories, while in terms of penalties or gains in earnings, traditional caste-hierarchy may not always operate uniformly. Our findings disrupt the standard expectation in structural transformation models and labour market theories, while highlighting the need to foreground evolving nature of informality in labour market models for developing economies.