Labour Market II: The Nature and Composition of the Indian Labour Force, Unemployment and Underemployment, the Characteristics and New Dynamics of the Indian Labour Market, and the Problems of Labour in India

The Census counts workers every ten years: a main worker is one who worked for six months or more (183 days) in the reference year, and a marginal worker one who worked for less. The National Sample Survey Office's quinquennial employment–unemployment surveys, the last in 2011–12, were the main source for decades, and the Periodic Labour Force Survey (PLFS), run by the National Statistics Office under the Ministry of Statistics and Programme Implementation since 2017–18, replaced them; its annual reports cover July to June, and it was revamped from January 2025 to give monthly and quarterly estimates for rural and urban areas. These surveys classify activity by three approaches. Usual status looks at the reference year: the principal status is the activity on which a person spent the major part of the year, and the subsidiary status counts work of at least thirty days; usual principal and subsidiary status (UPSS) together give the widest count of workers. Current weekly status (CWS) looks at the seven days before the survey: a person is employed if he worked for at least one hour on any day. Current daily status (CDS) looks at each half-day of the week and measures person-days of employment and unemployment.

India has the largest labour force after China's, and it is young: the share of the working-age population is rising, the "demographic dividend" that will last some decades before ageing sets in. By sector, agriculture still employs the largest single share of workers — above two-fifths in the PLFS rounds of the 2020s — though its share of output is far smaller, which is the arithmetic of low agricultural productivity; manufacturing's share of employment has stayed modest, and construction and services have absorbed most of the workers leaving farms. By status in employment, about half or more of workers are self-employed (own-account workers, employers and unpaid family helpers), regular wage or salaried employees are a minority, and casual labourers make up much of the rest. By formality, the National Commission for Enterprises in the Unorganised Sector (2007) estimated that over nine in ten workers were informally employed — without written contracts, social security or paid leave — including many in the organised sector itself. Women's participation has been low by international standards, and rose markedly in the PLFS rounds after 2017–18, much of the rise being in rural self-employment. Participation, unemployment and job quality differ sharply by gender, caste, region, education and age: the unemployment rate is highest among educated youth.

Underemployment is a condition in which a person is employed but not fully or productively. Visible (time-related) underemployment is working fewer hours than one wishes and is available for; invisible underemployment is working full hours at very low productivity or income, or in a job that does not use one's skills. The distinction between the approaches to measurement matters: in India, usual-status unemployment (chronic, long-term open unemployment) is low, because the poor cannot afford to be unemployed for long and take whatever work is available, while current daily status unemployment, which counts idle days, is higher and captures much underemployment. The Committee of Experts on Unemployment Estimates chaired by M. L. Dantwala (1970) advised against a single figure and recommended these multiple measures, which the surveys have used since.

• Dualism and segmentation: a small, protected, formal segment with regular jobs, unions and social security beside a vast informal segment; the labour market is further segmented by caste, gender, region and migrant status.
• Surplus labour and low productivity, especially in agriculture, with slow movement of workers into high-productivity manufacturing.
• Predominance of self-employment and casual work, and informalisation within formal enterprises through contract, fixed-term and outsourced labour.
• Low levels of formal vocational training, and a mismatch between education and the skills employers seek.
• Large internal migration, seasonal and circular, from poorer to richer states and from villages to cities, much of it through contractors.
• Wide wage gaps between organised and unorganised, regular and casual, male and female, and urban and rural workers.

The new dynamics have several sources. Growth since 1991 has been led by services — information technology, finance, trade, transport and logistics — more than by manufacturing. The gig and platform economy has grown fast: NITI Aayog's report India's Booming Gig and Platform Economy (2022) estimated 7.7 million gig workers in 2020–21 and projected 23.5 million by 2029–30, and the Code on Social Security brought them into law for the first time. Formalisation has advanced through the goods and services tax, digital payments, the payroll data of EPFO and the e-Shram registration of unorganised workers, though most work remains informal. Women's participation has risen, the Covid-19 lockdown of 2020 exposed the vulnerability of migrant workers and pushed many back into agriculture for a time, and automation, artificial intelligence and remote work are changing the demand for skills. The state's responses include the Skill India mission and the Pradhan Mantri Kaushal Vikas Yojana (2015), the employment-linked incentive schemes, MGNREGA as a rural safety net, and the four labour codes, which raise thresholds, introduce fixed-term employment and extend social security.

The Royal Commission on Labour (1931) found the Indian factory worker to be essentially a migrant who kept his roots in the village, returning for festivals, harvests and illness, and traced much of the absenteeism and turnover of Indian industry to that link. Many of the problems it described persist in new forms. Low wages and poverty leave workers in debt to moneylenders, contractors and employers; indebtedness shades into bonded labour, which the Bonded Labour System (Abolition) Act 1976 abolished and which the Supreme Court, in Bandhua Mukti Morcha v. Union of India (1984), held the state bound to identify, release and rehabilitate. Absenteeism and labour turnover remain high where conditions are poor. Housing is inadequate and many industrial workers live in slums. Occupational hazards and disease go unrecorded in small units. Child labour persists in agriculture, domestic work and small industries despite the 2016 law. Women face lower pay, occupational segregation, the double burden of paid and unpaid work, and harassment, which the 2013 Act on sexual harassment at the workplace addresses. Caste shapes occupations, and manual scavenging, prohibited by the Prohibition of Employment as Manual Scavengers and their Rehabilitation Act 2013, has not ended. Migrant workers lack housing, portable benefits and political voice. Beyond these lie insecurity of employment, the absence of social security for most workers, weak and fragmented unions, the contractualisation of work, and a skill base below what a modern economy needs — the agenda that labour welfare, industrial relations and the labour codes set out to address.