Expert Speak Raisina Debates
Published on Jan 27, 2020
With the rise of digital labour platforms, new forms of employment are emerging that deviate from the “standard employment relationship.”
The future of work: Embracing informality

Emerging technologies associated with the Fourth Industrial Revolution (4IR) are fundamentally changing the nature of work and leading to major socio-economic transformations. Many conversations center on questions of how the nature of work is changing, how many and what kind of jobs are created or lost, which new skills will be required, and how workspaces are changing. Another question, particularly relevant for developing and emerging countries, is the impact on informal employment. This article investigates the consequences for India where the informal sector is the country’s “economic backbone.”

“Traditional” informal employment

4IR technologies, such as artificial intelligence, automation, robotics, and the Internet of Things, are likely to find adoption in select niches in the organised sectors of India’s economy, particularly in capital-intense manufacturing industries as well as in financial, legal, IT, and BPO services. <1> However, most Indian employees work in informal jobs, which are defined by ILO <2> as employment relationships that are, in law or in practice, not subject to national labour legislation, income taxation, social protection, or entitlement to certain employment benefits. The size of the informal sector is at about 90%, and has remained at this high level despite India’s IT sector boom and high annual growth rates. <3> The rates of informal employment are particularly high among the youth, in rural areas, and in agriculture. 4IR technologies are unlikely to significantly affect these jobs, because they rely heavily on manual labour and because of the lack of financial capital, supporting infrastructure, and requisite skills. <4>

New forms of informality in the gig economy

Another major technological development in the last decade has been the rise of digital labour platforms, which connect job seekers and job providers in novel ways. These platforms cater to demands that range from simple tasks that can be performed by lowskilled workers to complex jobs offered to highly educated professionals. Some examples of well-known platforms include Uber and Ola for ride sharing, Upwork for online freelancing, UrbanClap for hiring various local service providers (e.g., fitness trainers, carpenters, cleaners, hair stylists), Flexing It for consulting assignments, and Amazon Mechanical Turk for various microtasks.

With the rise of digital labour platforms, new forms of employment are emerging that deviate from the “standard employment relationship,” which is defined as work that is full time, indefinite, and as part of a subordinate relationship between an employee and an employer. <5> A shift towards an increasing number of people taking up “gig work” is a key trend characterising the future of work. These non-standard forms employment differ from traditional work arrangements in the following ways: <6>

  • Employment is not open ended: Workers are temporarily employed and receive contracts only for a fixed, usually short term or for the length of a specific project.
  • Employment is not full-time: Workers take up part-time or on-call employment and often combine several such jobs instead of working full-time for one organisation.
  • Employment does not take place within direct, subordinate relationships: Instead, multi-party employment relationships (e.g., mediated through labour agencies or brokers) and subcontracting are becoming more common.
  • Employment is not part of traditional employer-employee relationships: Increasing numbers of people consider themselves as self-employed and freelancers. However, disguised employment and dependent self-employment are frequent phenomena in the gig economy—the classification of workers as “self-employed” is false, if they carry out tasks for one or few clients who they strongly depend on as source(s) of income and who closely supervise their work.

These new forms of employment exhibit high degrees of informality. Instead of relying on permanent employees, platforms allow businesses to tap into a flexible workforce and hire workers online to perform jobs on demand and pay them when the task is done. Startups in particular, which themselves play an important role in the digital economy, outsource many tasks to keep their teams lean. By using this new, cheaper method of hiring talent, rather than hiring workers directly, companies therefore incur lower liability, which in turn undermines labour protections. <7> Workers, now classified as “independent contractors,” are not entitled to receive the same benefits (e.g., health insurance, sick and holiday pay, family leaves) as regular employees. Moreover, informality is visible in a lack of safety and protection against discrimination and coercion.

While no official data is available on the scope and development of the Indian gig economy, atypical work arrangements are clearly on the rise. They generate significant employment opportunities, especially for young people. However, as gig work becomes more mainstream in white-collar professions, such non-standard forms of employment will simply replace regular employment. Consequently, an informalisation of the formal sector can be observed, which implies that informality will be a growing rather than diminishing phenomenon.

As gig work becomes more mainstream in white-collar professions, non-standard forms of employment will simply replace regular employment.

Implications of informality Informality and its possible impacts on socio-economic development are subject to a controversial and ideologically loaded debate. From a macroeconomic perspective, some argue <8> that the informal sector can be an engine for growth and job creation, as strong linkages exist between formal and informal firms, whereby they benefit from each other. From a microeconomic perspective, new forms of employment afford more flexibility and give the worker freedom to decide where and when to work. Moreover, some believe that the gig economy offers plentiful entrepreneurial opportunities and provides a field for experimentation, which allows workers to supplement income and transform a patchwork of jobs into a steady upward career trajectory. <9>

On the other hand, informality has negative impacts for individuals, firms, and societies.<10> While some firms reduce costs by outsourcing tasks to informal workers or buying inputs from informal firms, those enterprises are a source of unfair competition for firms which comply with labour laws. Some individuals appreciate the possibility of working more flexibly and will seize opportunities and become successful through “side hustles.” However, most workers still prefer characteristics associated with traditional employee-employer relationships, whereas job security is still valued more than flexibility and other work attributes. <11> In addition, the beneficiaries will likely be some educated few, while the majority of workers turn to the gig economy because they have no other option. For them, the increasing informality of non-standard forms of employment will imply higher vulnerability and uncertainty. Finally, informality implies lower tax revenue for the government, which and weakens its financial ability to invest into and accelerate the country’s development.

Addressing the challenges of new labour market realities

Ultimately, the existing reach of informal employment in India and the emergence of non-standard forms of employment that defines the gig economy will make informality a growing phenomenon. A continued effort should be made by policymakers to incentivise formalisation by lowering the costs and bureaucratic obstacles for declaring workers and promoting legal compliance. At the same time, however, given the political imperative to create jobs and the gig economy’s employment generation potential, informality needs to be embraced as an economic reality. The challenge is twofold: on the one hand, to give companies the necessary flexibility to innovate and compete successfully in a business environment characterised by rapid technological change, and on the other hand, to ensure that workers in new forms of employment can build sustainable livelihoods.

A continued effort should be made by policymakers to incentivise formalisation by lowering the costs and bureaucratic obstacles for declaring workers and promoting legal compliance.

Government as well as corporate and worker representatives must work together to actively shape the future of work and address challenges associated with informality. First, there is a lack of reliable knowledge on Indians working in the gig economy. The government, in cooperation with universities and research organisations, should collect quantitative data and enable qualitative research to track how many people are engaged in non-standard forms of employment, and to better understand their working conditions. Second, the issue of frequent misclassification of employment has to be addressed. Those who work in dependent work in subordinate relationships fulfill the definition of an employee and have to be classified as such, and therefore need to be treated by the same standards.

Third, taking into consideration the characteristics of non-standard forms of employment, Indian labour and social protection laws and schemes need to be adjusted. One opportunity is provided through the fact that informal workers are no longer invisible: once they are registered on a platform, they can be connected to social security frameworks. <12> Fourth, as self-employed workers are disconnected, they need new forms of organisation and representation to strengthen their collective bargaining efforts in the platform economy. Finally and critically, investments in education and skilling are required to better equip the Indian labour force for new labour market realities.

<1> Urvashi Aneja, “Informal will be the new normal in the future of work”, The Wire, June 19, 2018.

<2> ILO, “Guidelines concerning a statistical definition of informal employment”.

<3> World Bank, “World Bank Development Report: The changing nature of work”, 2019.

<4> See note 1.

<5> ILO, “Non-standard employment around the world: Understanding challenges, shaping prospects”, 2016.

<6> Ibid.

<7> Ephrat Livni, “The gig economy is quietly undermining a century of worker protections”, Quartz, February 26, 2019.

<8> See, for instance, Ejaz Ghani, “The power of informality”, Business Standard, May 4, 2019.

<9> Anne-Marie Slaughter and Aubrey Hruby, “Informal sector will be main job creator in future. So equip workers today”, Hindustan Times, Nov 23, 2017.

<10> ILO, “Informality and non-standard forms of employment”, Paper prepared at the G20 Employment Working Group meeting, February 20-22, 2018.

<11> Nikhil Datta, “Is it time up for the gig economy?” World Economic Forum, Jul 22, 2019.

<12> Sabina Dewan and Partha Mukhopadhyay, “More than formalizing informal jobs, we need to create productive ones”, Hindustan Times, Dec 14, 2018.

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Sabrina Korreck

Sabrina Korreck

Dr. Sabrina Korreck was a Senior Fellow at Observer Research Foundation. Her research focuses on the digital economy and she tracks developments in startup ecosystems ...

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