Difference Between Formal and Informal Employment with Examples and MCQs
Employment growth, informalisation, and other issues are central topics in Economics and Commerce. They help students understand how jobs are generated, the impact of formal versus informal work, and employment trends in India. This topic is highly relevant for class 11, class 12, and competitive exams, as well as real-life awareness of the Indian labour market.
| Aspect | Formal Employment | Informal Employment |
|---|---|---|
| Definition | Jobs with official contracts, regular wages, and social security benefits | Jobs without legal contracts, irregular income, little or no social security |
| Examples | Government offices, registered companies, banks | Street vendors, small shops, daily wage laborers |
| Job Security | High | Low |
| Social Benefits | Yes (PF, pension, paid leave) | Rare or absent |
| Regulation | Government-regulated | Unregulated |
Employment Growth, Informalisation, and Other Issues
Employment growth means an increase in the number of people working in an economy. Informalisation is the trend where more workers are engaged in informal (unregulated) jobs. Other issues linked to employment include jobless growth, underemployment, and workforce distribution across sectors. These are important for understanding the structure of the Indian economy, and they often appear as key questions in CBSE or NCERT-based exams.
Types of Employment in India
There are mainly three types of employment in the Indian context: self-employment, regular salaried work, and casual wage work. Most workers are still engaged in informal sectors like agriculture and small businesses. This affects job security and social benefits, leading to increased informalisation.
Key Issues Related to Employment
- Jobless Growth: Output grows, but not enough jobs are created.
- Casualisation: More people shift to casual, short-term jobs.
- Informalisation: The share of informal sector jobs increases.
- Workforce Distribution: More workers in agriculture, fewer in industry or services.
Real-World Examples of Employment Issues
For example, consider a city where new factories are built but machines do most of the work. The GDP increases, but few jobs are generated—this is jobless growth. In rural areas, many work without contracts or benefits. Government schemes like MGNREGA aim to reduce such informalisation by offering guaranteed wage employment.
Practice MCQs on Employment Growth, Informalisation, and Other Issues
- Which of the following sectors employs the most workers in India?
a) Agriculture
b) Industry
c) Services
d) IT Sector
Answer: a) Agriculture - Informalisation of employment means:
a) Fewer regulated jobs
b) More workers without social security
c) Rise in unregulated, low-benefit jobs
d) All of the above
Answer: d) All of the above - Jobless growth is best defined as:
a) Employment rising faster than GDP
b) GDP rising, but employment remains stagnant
c) More people becoming self-employed
d) Shift from agriculture to industry
Answer: b) GDP rising, but employment remains stagnant - Which of the following is NOT a feature of formal employment?
a) Written contracts
b) Regular salary and benefits
c) No social security
d) Paid leave
Answer: c) No social security - Which scheme was launched by the government to address rural unemployment?
a) GST
b) MGNREGA
c) PMJDY
d) Digital India
Answer: b) MGNREGA - What is casualisation of the workforce?
a) More permanent jobs
b) Increased temporary, daily-wage jobs
c) All jobs become formal
d) None of the above
Answer: b) Increased temporary, daily-wage jobs - The main source of data on employment in India is:
a) Census
b) National Sample Survey (NSS)
c) Income Tax Records
d) SEBI
Answer: b) National Sample Survey (NSS) - Which of the following is a characteristic of the informal sector?
a) Job security
b) Fixed hours
c) Irregular wages
d) Regulated working conditions
Answer: c) Irregular wages - Which of these is NOT considered underemployment?
a) Doctor working as a clerk
b) Engineer working part-time
c) Unemployed graduate
d) MBA doing basic data entry
Answer: c) Unemployed graduate - Assertion (A): Most self-employed persons work in the informal sector.
Reason (R): The informal sector needs fewer skills.
Choose the correct answer.
a) Both A and R are true, R explains A
b) Both A and R are true, R does not explain A
c) A is true, R is false
d) Both A and R are false
Answer: b) Both A and R are true, R does not explain A
Case Study: Informalisation in Indian Cities
Consider a metro city where many construction workers, rickshaw pullers, and domestic helpers work without written contracts. They do not receive Provident Fund or health insurance. This reflects informalisation of employment, leading to poor job security and uncertain incomes. Government efforts focus on shifting such workers towards formal sector jobs through reforms and social security schemes.
Causes and Impacts of Informalisation
- Rapid urbanisation and migration
- Slow formal sector growth
- Skill gaps limiting access to formal jobs
- Weak enforcement of labour laws
- Lower productivity and tax revenue
Links to Related Commerce Topics
- Unemployment and Employment Generation
- Sectors of Indian Economy
- National Income
- Poverty Alleviation Policies and Programs
- Factors of Production: Labour
- Human Capital Formation
- Features of Company
- Role of Government in Economy
- Employment Growth and Jobless Growth
- Indian Economy during Reforms
Summary
Understanding employment growth, informalisation, and other issues gives Commerce students a strong foundation for exams and real-world knowledge. It explains how formal and informal jobs differ, the importance of government policies, and the effects of employment trends on the economy. At Vedantu, these concepts are made clear to support better learning and exam success.
FAQs on Employment Growth, Informalisation, and Other Issues: MCQs & Key Concepts
1. What is meant by employment growth?
Employment growth signifies an increase in the number of people employed within a specific timeframe in an economy. This growth is crucial for economic development and improved living standards. Factors influencing this include economic expansion, government policies, and technological advancements.
2. What is informalisation of employment?
Informalization refers to the rising proportion of workers employed in the informal sector, characterized by unregulated jobs, low wages, lack of benefits, and minimal job security. This trend impacts economic growth, social security, and overall development. Key drivers include lack of job creation in the formal sector, regulatory hurdles, and economic disparities.
3. What is jobless growth?
Jobless growth occurs when a nation's GDP increases, but employment opportunities do not grow proportionally. This indicates a mismatch between economic output and job creation. Contributing factors can be automation, technological shifts, and inefficient resource allocation.
4. What is the difference between formal and informal employment?
Formal employment involves jobs in the organized sector, offering social security, employee benefits, and legal protection. Conversely, informal employment comprises unregulated jobs lacking these benefits, often characterized by low pay and poor working conditions. The distinction is vital for understanding employment statistics and policy implications.
5. What are informalisation and employment?
Informalisation is the increase in the share of the workforce in informal employment. Employment refers to the total number of people currently working. Understanding the interplay between these two is crucial to comprehending the dynamics of labour markets and economic development, especially in developing economies like India.
6. What causes informalisation in India?
Informalization in India stems from several interconnected factors: rapid population growth outpacing job creation, weak labour laws, a lack of access to credit and capital for small businesses, and limited skill development opportunities leading to a large pool of unskilled labour. These factors contribute to the prevalence of the informal economy.
7. Explain growth of employment with examples?
Employment growth reflects an increase in the number of jobs available. For example, the expansion of the IT sector in India has led to significant employment growth. Similarly, government initiatives promoting entrepreneurship and small and medium enterprises (SMEs) can boost employment across diverse sectors. Conversely, economic downturns often cause a decline in employment figures.
8. Why is the informal sector still dominant in India?
The dominance of the informal sector in India is due to several persistent challenges: high population growth leading to surplus labour, limited availability of formal sector jobs, weak enforcement of labour laws, and the ease of entry into informal jobs. Addressing these issues through skill development programs, robust labour regulations and investment in infrastructure is crucial.
9. How does informalisation impact economic growth?
Informalization negatively impacts economic growth by hindering productivity due to lower worker skills and lack of investment in technology. It also reduces tax revenue for the government, limiting its ability to fund public services and infrastructure. Finally, it undermines social security systems, leaving a large part of the population vulnerable. Therefore, addressing informalization is essential for sustainable and inclusive economic growth.
10. What policies help reduce informalisation?
Policies to reduce informalization involve a multi-pronged approach. This includes strengthening labour laws, promoting skill development programs to enhance workforce capabilities, encouraging the growth of SMEs through access to credit and support, and expanding social security coverage to protect informal workers. These strategies require coordinated government action and collaboration with private stakeholders.
