India’s Workforce Composition: The Role of the Organised and Unorganised Sectors

India’s labour market is unlike most large economies in the world. While headlines often focus on glittering corporate offices, IT parks, and government jobs, the reality is that the overwhelming majority of working Indians do not have a written contract, a fixed salary, or any meaningful safety net. The country’s workforce is sharply segmented, and understanding this segmentation is essential to making sense of debates around wages, gender, social security, and economic reform.

A workforce split into three layers 🔗

Indian labour economists generally describe the workforce as a three-layered pyramid. Each layer differs in size, income, job security, and access to benefits, and movement between them is far harder than it appears.

The elite white-collar segment 🔗

At the top sits a small group of highly paid professionals, including senior managers in multinational firms, IT and finance specialists, doctors in corporate hospitals, and senior civil servants. They enjoy structured pay scales, provident fund, gratuity, health insurance, and clearly defined career paths. This segment is influential in shaping public discourse, but it is numerically tiny, generally estimated at only a few percent of total employment.

Regular wage employees 🔗

Below the elite layer is a broader middle band of regular wage workers in government departments, public sector undertakings, registered factories, banks, schools, and large private firms. These workers usually have written contracts and are covered by labour laws such as the Employees’ State Insurance Act, 1948 and the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952. They are not as wealthy as the elite, but they enjoy reasonable job stability and statutory benefits.

The vast unorganised workforce 🔗

The base of the pyramid is the largest and most economically vulnerable group. It includes farm labourers, construction workers, street vendors, domestic workers, beedi rollers, handloom weavers, head-loaders, rickshaw pullers, sanitation staff, small shopkeepers, and home-based producers. The National Commission for Enterprises in the Unorganised Sector (NCEUS) defines such enterprises as unincorporated units run by individuals or households, engaged in the production or sale of goods and services, typically employing fewer than ten workers. Workers here usually lack written contracts, social security, paid leave, or any guarantee of continued employment.

What the NSSO and PLFS data reveal 🔗

The clearest picture of this segmentation comes from the National Sample Survey Office (NSSO) and its successor, the Periodic Labour Force Survey (PLFS). According to the NSSO’s labour force survey for 2011-12, out of an estimated 47.41 crore employed persons, about 82.7% (39.14 crore) were in the unorganised sector. More recent data tells an even starker story. The Economic Survey 2021-22 estimated that out of 53.53 crore workers in 2019-20, 43.99 crore were employed in the unorganised sector.

Including informal workers within the formal sector – those without social security despite working in registered firms – pushes the share of informal employment to roughly 93% of the total workforce, amounting to nearly 43.7 crore people. This is why economists often summarise the situation in a single statistic: about nine out of every ten Indian workers operate outside the protective shell of formal labour regulation.

Sectoral patterns of informality 🔗

Informality is not spread evenly. Agriculture, which still absorbs the largest share of workers, is almost entirely unorganised. Construction, despite booming infrastructure spending, runs largely on daily-wage migrant labour. Manufacturing has a mix of large registered factories and a huge tail of small workshops, while services range from highly formal banking jobs to entirely informal street vending and domestic work. The informal sector contributes roughly half of the country’s gross value added even though it has limited statistical visibility, underlining its economic weight despite poor protection.

The gender dimension 🔗

Women are concentrated even more heavily in the unorganised sector than men. They dominate work that is invisible in official records, such as unpaid family labour on farms, home-based piece-rate production, domestic work, and small-scale vending. As a result, women workers face a double disadvantage: lower wages than men in the same occupation, and far weaker access to maternity benefits, pension, or insurance. Policy efforts to expand female labour force participation must therefore confront not just the question of jobs, but the quality and security of those jobs.

Why so many Indians remain in the unorganised sector 🔗

Several structural reasons explain the persistence of this pattern. First, agriculture still employs a large share of workers but generates a much smaller share of income, pushing surplus labour into low-productivity informal non-farm activities. Second, the manufacturing sector has not absorbed labour at the scale seen in East Asian economies, leaving services to expand unevenly between high-skill formal jobs and low-skill informal ones. Third, small enterprises often stay below the size thresholds that trigger labour-law compliance, since formalisation brings tax and regulatory costs they cannot easily bear. Finally, the rise of platform-based gig work has created a new layer of workers who look modern but are functionally informal, lacking employer-provided benefits.

The social security gap 🔗

The most serious consequence of this workforce structure is the social security gap. Formal sector workers are covered by provident fund, gratuity, employee state insurance, and pension. Unorganised workers historically had access to none of these. To address this, Parliament passed the Unorganised Workers’ Social Security Act, 2008, which defines unorganised workers as home-based workers, self-employed workers, or wage workers in the unorganised sector and sets up National and State Social Security Boards to recommend welfare schemes.

From the 2008 Act to the Code on Social Security, 2020 🔗

A major legislative consolidation followed in 2020, when nine separate labour laws were merged into the Code on Social Security. For the first time, the Code formally recognised gig workers and platform workers and mandated a National Database of Unorganised Workers linked through Aadhaar. This was an important conceptual shift: instead of treating informal workers as exceptions to the labour-law system, the law began to acknowledge them as a permanent and central feature of the economy.

The eShram portal and welfare schemes 🔗

The operational arm of this effort is the eShram portal, run by the Ministry of Labour and Employment to build a national database of unorganised workers. As of mid-2023, around 28.96 crore workers had registered on the portal. Registered workers can be linked to schemes such as Pradhan Mantri Jeevan Jyoti Bima Yojana for life insurance, Pradhan Mantri Suraksha Bima Yojana for accident cover, Pradhan Mantri Shram Yogi Maan-dhan for old-age pension, and Ayushman Bharat for hospitalisation.

Policy challenges that remain 🔗

Despite these initiatives, several gaps continue to undermine the system. Registration is not the same as benefit delivery; many workers on the eShram database have not actually received tangible payouts. Awareness of schemes is low among rural and migrant workers, and documentation requirements such as Aadhaar-linked mobile numbers and bank accounts can exclude the poorest. Funding levels for unorganised-sector schemes remain modest compared with the size of the workforce, and benefits like a small pension or low insurance cover may be inadequate against today’s healthcare and living costs.

There is also a deeper definitional problem. A significant share of workers within the formal sector itself are employed informally – through contractors, fixed-term contracts, or sub-contracting arrangements – which means that simply expanding the formal sector does not automatically extend social protection. Real progress requires both formalising more enterprises and ensuring that formal-sector employment itself carries genuine benefits.

What good policy would look like 🔗

A more effective approach would combine universal, portable benefits with sector-specific protections. Universal health coverage and a basic old-age pension, delinked from formal employment, would address the largest sources of vulnerability. Specific groups such as construction workers, domestic workers, and gig workers need tailored welfare boards funded by employer contributions or cess levies. Strengthening minimum wage enforcement, simplifying compliance for small firms, and improving labour statistics through more frequent PLFS rounds would together help close the gap between formal rights and lived reality.

Why this matters for the wider economy 🔗

The workforce composition shapes far more than labour policy. It influences household consumption, since informal incomes are volatile and savings rates low. It affects tax revenue, because most informal earnings stay outside the income tax net. It complicates monetary policy, since informal employment is sensitive to shocks like demonetisation, the GST rollout, or the COVID-19 lockdowns in ways that formal data may underestimate. And it has profound implications for inequality, because the gap between organised and unorganised workers tends to widen during periods of rapid growth, not narrow.

Recognising that 90% or more of the workforce remains unorganised is not a counsel of despair. It is a starting point for thinking realistically about what kind of welfare state, labour law, and economic strategy India actually needs – one designed for the workforce it has, rather than the workforce it wishes it had.

What do you think? If nearly nine out of ten Indian workers are in the unorganised sector, should social security be tied to employment status at all, or should benefits like health cover and pension be made universal and portable? And how can welfare boards be designed so that women workers – who are disproportionately informal and often unpaid – are not left behind in the shift towards digital registration systems like eShram?

References

1. https://www.indiacode.nic.in/handle/123456789/2100?view_type=search
2. https://mospi.gov.in/sites/default/files/committee_reports/nsc_report_un_sec_14mar12.pdf
3. https://pib.gov.in/newsite/PrintRelease.aspx?relid=147634
4. https://www.indiabudget.gov.in/economicsurvey/ebook_es2022/files/basic-html/page398.html
5. https://www.drishtiias.com/daily-updates/daily-news-analysis/enhancing-social-security-for-unorganized-workers
6. https://www.imf.org/-/media/files/conferences/2019/7th-statistics-forum/session-ii-murthy.pdf
7. https://www.indiacode.nic.in/bitstream/123456789/15481/1/the_unorganised_workers_social_security_act,_2008.pdf
8. https://thelaw.institute/human-rights-in-india/safeguarding-rights-unorganized-workers-india/
9. https://eshram.gov.in/act-and-rules
10. https://www.pib.gov.in/PressReleasePage.aspx?PRID=1942079
11. https://www.researchgate.net/publication/262126266_Unorganised_Sector_Workforce_in_India_Trends_Patterns_and_Social_Security_Coverage