Skills, Informality, and Development

Dibyendu Maiti, Arup Mitra
JEL codes: 
IEG Working Paper No. 306

This paper makes an attempt to estimate the index of informal sector employment which can be attributed to the supply-push phenomenon. Factors which explain the inter-state variations include the industrial-informal sector wage gap, revenue expenditure, and development expenditure incurred by the government. Increased development expenditure brings in a decline in distress-led informalization. With improved education, health, and infrastructure facilities the employability of an individual goes up, which, in turn, reduces the compulsion to get absorbed residually. However, expansion in government activities measured through increased revenue expenditure raises in-migration, which in turn raises the supply-push phenomenon. We also observed that with an increase in distress-led informalization inequality tends to rise. Adoption of labour intensive technology in the organized industrial sector is indeed crucial for pro-poor growth. The other policy implication is in terms of enhanced investment in the areas of education, health and other infrastructural facilities.