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Question – How has globalization reduced employment in the formal sector of the Indian economy? Is increased informality harmful to the development of the India? – 2 July 2021
With the economic reforms of 1991, India opened its doors to the world and embraced globalization which allowed the Indian economy to connect with others.This enabled the global integration of production and markets across nations. It is said that globalization has reduced the informatization of the economy and formal employment. Though informalization has provided livelihood to many people, it has not raised the standard of living as expected.
How has globalization reduced formal employment?
Decline in public employment: The most stable source of formal employment has been the public sector, because a major focus of liberalisation is a reduction in size of the public sector. The proportion of formally employed workers fall as governments cut their work force unless.
Restrictive Labor Laws: Due to the lack of restrictive labor laws and labor reforms after liberalization, industries started hiring on contract. This was done to circumvent the stringent hiring and firing provisions. This led to a reduction in formal jobs and more contractual jobs of a short-term nature.
Informalisation: Due to rise in the service sector many jobs were outsourced which were fulfilled by the informal sector. Further, contractual jobs led to insecurity in the labor sector and formal sector. Thus, many people took up informal jobs.
Capital Intensive Industries: The new industries were capital intensive rather than labor intensive, thus absorbing less workforce. This left workers out of formal sector employment.
Women employment: As the decent formal jobs declined and economic growth slowed many men remain unemployed. As a result, women increasingly seek paid employment in the informal economy as a means to ensure the living standards for households that are already living in poverty. Further, with responsibility to manage home, more women seek informal employment.
Service-sector led growth: Globalisation led to growth of service sector in India. Service sector requires skilled labour that was not available as required. As a result many sectors lacked skilled manpower and formal jobs were not created.
How is the informal sector important for development?
Livelihood: The informal economy contributes significantly to production, employment and income generation in developing countries. It is a source of livelihood for the vast majority of the poor and an important means of survival for people in countries that do not have proper social safety nets and unemployment insurance, especially lacking skills for formal sector jobs.
Working conditions: Over recent decades, conditions for working people have undergone a major transformation. This has been due to the substantial rise in the proportion of people engaged in informal employment.
Women empowerment: Due to the growth of the informal sector, many women have been employed. Informal sector provides flexibility to work. Due to the responsibilities of managing a house, women seek and find informal jobs best as it provides them with flexibility to work. At the time of pregnancy they can leave their job, if they want to focus on themselves. This flexibility allowed many women to get work.
Low Productivity: Contract workers have no attachment or loyalty to the company. Therefore, it hinders productivity and economic growth. The productivity of the economy as a whole declines as companies lose incentive to skill employees, and focus on the contractual workforce.
From the above it can be concluded that informal employment though provides badly needed jobs for the poor, but it harms workers’ safety, predicament and earns social benefits. Arab spring is one such example, which began when a young street trader set himself on fire due to constant harassment and humiliation by the police. Thus, increased informality is harmful as it affects long-term goals. Steps should be taken to create more formal employment.