Context:

• A vast majority of Indians earn the entirety of their incomes through labour as opposed to ownership of capital or land. 
• Further, about 90% of the working Indian population earns its livelihood through informal employment that is characterised by little or no job security, no employment benefits, no social protection, and lower earnings.
• At this juncture, exploring the efficiency of labourers engaged in informal employment becomes necessary.

Reasons for Suboptimal use of labour in India:

• Low-Quality Jobs: A significant portion of the workforce is engaged in low-quality self-employment, particularly unpaid family work, which offers limited prospects for income growth and economic advancement.
• Stagnant Earnings: Despite some increases in average daily earnings for certain segments, overall earnings for many workers have stagnated or shown minimal growth, indicating a lack of upward mobility and economic progress.
  • At the most aggregate level, the all-India average real daily earnings increased by around ₹10 (in 2010 prices) between 2017-18 and 2021-22, about a 4% increase.
• Lack of Skill Development: Limited access to education and skill development programs restricts the ability of workers to access higher-paying and more productive employment opportunities.
• Structural Barriers: Structural barriers, such as caste, gender, and geographic disparities, hinder equitable access to employment and economic opportunities, perpetuating inequality and limiting labour market efficiency.
• Informal Sector Dominance: The predominance of the informal sector in the Indian economy, which comprises a significant portion of low-productivity jobs, constraints overall productivity and economic growth.
• Insufficient Investment: Insufficient investment in infrastructure, technology, and human capital development hampers the creation of high-quality jobs and limits the potential for labour productivity gains.
• Lack of Labor Market Reforms: Inadequate labour market reforms, including rigid labour laws and regulations, hinder job creation, investment, and innovation, limiting the dynamism and efficiency of the labour market.

Measures to address this problem:

• Investment in Education and Skill Development: Implementing policies to enhance access to quality education and vocational training programs can equip the workforce with the skills needed to access higher-paying and more productive employment opportunities. This includes promoting technical and vocational education, as well as fostering lifelong learning initiatives to adapt to evolving job market demands.
• Promotion of Formal Employment: Introducing measures to incentivize formal employment, such as tax breaks or subsidies for formal sector employers, can help shift workers from the informal to the formal sector. This can improve job security, access to benefits, and social protection for workers, ultimately enhancing labour productivity and economic growth.
• Labour Market Reforms: Undertaking labour market reforms to address rigid labour laws and regulations can facilitate ease of doing business and promote job creation. This may involve streamlining labour regulations, introducing flexible employment arrangements, and promoting labour market flexibility while ensuring adequate protection for workers’ rights.
• Investment in Infrastructure and Technology: Increasing investment in infrastructure development, including transportation, communication, and digital infrastructure, can create employment opportunities and enhance labour productivity. Additionally, promoting the adoption of technology and innovation in key sectors can drive productivity gains and create high-quality jobs, particularly in sectors such as manufacturing, agriculture, and services.

India is in its period of demographic dividend which is expected to peak in less than 20 years and exhaust in roughly another 30 to 35 years. In this golden period of reaping labour productivity, taking adequate measures to address these issues becomes a necessity.