Underemployment in Industry and Services

This chapter shows that even industry and services in India are characterized by gross underemployment. The bulk of the workforce in industry and services is concentrated in informal unincorporated enterprises, where self-employment and casual employment dominate. The average value added by a worker in these enterprises is no higher than that in agriculture. Most enterprises have no hired workers, and when they do, annual wages are under 100,000 rupees. Whereas 75 percent of China’s manufacturing workforce is in medium and large enterprises, only 16 percent of India’s workforce is. The near absence of medium and large enterprises translates into very low productivity, not just overall but also in small enterprises. This is because medium and large firms produce greater competition and innovation in products, processes, and management. Medium and large firms also benefit from exposure to global markets. Creation of high-quality jobs requires an ecosystem conducive to the emergence of medium and large firms.