Informal employment in manufacturing on a rise in India: ILO

Despite the stable unemployment level, decent work deficits remain widespread, vulnerable employment is on the rise and the pace of working poverty reduction is slowing.

According to a new report by the International Labour Organisation, released at the World Economic Forum at Davos, the unemployment level across the world will remain stable at 5.6 per cent in 2018, after a steep increase in 2016. This means, there will be hardly any change from last year, which is primarily due to the recovery of the global economy.

However, what’s worrying is that despite the stable unemployment level, decent work deficits remain widespread.

“The global economy is still not creating enough jobs. Additional efforts need to be put in place to improve the quality of work for jobholders and to ensure that the gains of growth are shared equitably,” ILO director-general Guy Ryder says.

The other worrying fact is that vulnerable employment is on the rise and the pace of working poverty reduction is slowing.

The report highlights the fact that the significant progress achieved in the past in reducing vulnerable employment has essentially stalled since 2012. This means, that almost 1.4 billion workers are estimated to be in vulnerable employment in 2017, and that an additional 35 million are expected to join them by 2019. In developing countries, vulnerable employment affects three out of four workers.

Informality affects around 90 per cent of all workers in India, Bangladesh, Cambodia and Nepal. Such a high incidence of informality is only partially driven by the high shares of employment in agriculture—a sector in which informality is typically higher than in the rest of the economy.

The number of workers living in extreme poverty is expected to remain stubbornly above 114 million for the coming years, affecting 40 per cent of all employed people in 2018

Service-sector jobs will be the main drivers of future employment growth, while agriculture and manufacturing employment will continue to decline.

Since vulnerable and informal employment are prevalent in both agriculture and market services, the projected employment shifts across sectors may have only limited potential to reduce decent work deficits, if not accompanied by strong policy efforts to boost job quality and productivity in the service sector.

Informality affects around 90 per cent of all workers in India, Bangladesh, Cambodia and Nepal. Such a high incidence of informality is only partially driven by the high shares of employment in agriculture—a sector in which informality is typically higher than in the rest of the economy.

In these countries, the incidence of informal employment is also notably high in the manufacturing and market services sectors. In India, for example, the share of informal employment has risen within almost all manufacturing industries, partly as a result of labour market rigidities preventing modern manufacturing from creating employment opportunities.

In fact, informality in these countries also remains pervasive in the non-agriculture sectors, such as construction, wholesale and retail trade, and accommodation and food service industries. In addition, it is noteworthy that informality continues to affect more than half of all workers in China, with no significant difference discernible between the agriculture sector and the rest of the economy.

The process of structural transformation has been proceeding slowly in southern Asia, where agricultural employment still represents 59 per cent of total employment, while manufacturing accounts for only 12 per cent, and services for about 24 per cent. However, these trends are expected to continue, to various degrees, over the next few years, posing questions about the role of the services sector as a creator of quality jobs and driver of economic development.

In India, for example, the share of informal employment has risen within almost all manufacturing industries, partly as a result of labour market rigidities preventing modern manufacturing from creating employment opportunities.

In fact, while there has been strong job creation in some ICT-intensive services, notably in India, a significant portion of the jobs created in the services sector over the past couple of decades have been in traditional low value-added services, where informality and vulnerable forms of employment are often dominant.

The report also looks at the influence of population ageing. It shows that the growth of the global workforce will not be sufficient to compensate for the rapidly expanding pool of retirees. The average age of working people is projected to rise from just under 40 in 2017 to over 41 in 2030.

“Besides the challenge created for pension systems by a growing number of retirees, an increasingly ageing workforce is also likely to have a direct impact on labour markets. Ageing could lower productivity and slow down labour market adjustments following economic shocks,” says Sangheon Lee, director of research department, ILO.