Understanding Unemployment Types
The four terms—Organised, Unorganised, Formal and Informal—in the economy creates a lot of confusion in the minds of candidates. In this article, we will discuss about these terms and their relevance in the Indian economy.
Difference between form and informal sector
Formal sector
- Formal sectors are those sectors that are taxed and monitored by the government and the activities involved are included in the Gross Domestic Product(GDP).
- In a formal economy, a worker:
- has a formal contract with the employer
- has pre-defined work conditions and job responsibilities
- gets an assured and decent fixed salary with perks and incentives
- Has fixed duration of work time
- is part of an organized group of people working in the same environment and is legally and socially aware about its rights
- is covered by a social security for health and life risks.
Informal sector
- ILO defines informal sector as as private unincorporated enterprises owned by individuals (or households) that are not constituted as separate legal entities independently of their owners.
- In an informal economy, worker has:
- has no formal contract with his employer
- has no systematic work conditions
- gets irregularly and unevenly paid.
- has no forum to express his grievances
- has no fixed hours of work and mostly earns hand to mouth
- is not covered by any kind of social security system and has poor knowledge about the need to protect himself socially and economically.
Difference between organised and unorganised sector
Organised sector
- The organised sector comprises employees who work under fixed terms and conditions.
- Here, the companies are registered with the government and people get assured work, and the employment terms are fixed and regular.
Unorganised sector
- The unorganised sector refers to those enterprises whose activities or collection of data is not regulated under any legal provision or do not maintain any regular accounts.
- National Commission for Enterprises in the Unorganized Sector (NCEUS) has estimated that in 2005 there were 423 million informal workers in India of which 395 million belonged to the informal sector.
- The importance of the sector is evident from the fact that more than 50% of the GDP comes from this sector.
What is the difference between unorganised sector and informal sector?
- In Indian official statistical documentation, there is no mention of informal sector.
- It is also not being used by the National Accounts Statistics (NAS). In fact, NAS uses organized and unorganized sector.
- So, in India the terms unorganised/ informal sector is used inter changeably.
Economy Notes for UPSC