Impact of Location and type of Enterprise on extent of Informality in Haryana

 

Dr Sonu Madan¹, Ritu Goyal²

¹Assistant Professor, Department of Economics, Indira Gandhi University, Meerpur, Rewari, Haryana

²Research Scholar, Department of Economics, Indira Gandhi University, Meerpur, Rewari, Haryana

 

ABSTRACT:

The concept and scope of the informal employment is no longer confined to a particular region or sector and has been changing through time and space. Two billion of the world’s employed population is working informally. In this concern, present paper intends to estimate the effect of location and enterprise type on the informality extent faced by workers in Haryana by using two-way ANOVA, on unit level data of NSS 68^th round (2011-12). To measure the extent of informality at work place, informality index has been constructed. The study concludes that informality varies with location as well as type of an enterprise. Out of 4 revenue divisions, workers employed in Ambala and Rohtak revenue division bear worse working conditions than those working in Gurugram and Hisar revenue division. Similarly, formal enterprises provide formal work culture and working conditions to their workers. The paper also suggests the policies for reducing the informality extent of workers by inducing formalization of informal enterprises, ensuring decent work standards in informal jobs, and strict implementation of legislative provisions targeting worse working condition for informal workers.

 

 

 

1. INTRODUCTION:

Informality is a widespread phenomenon as the informal sector constitutes half of the economicactivities in developing and transition economies as well. In India, despite economic growth, informal workers have contributed a significant share in the workforce, as 91.9 per centworkforceis employed informally (Sharma, 2012; NSS, 2014). Informality at workplace is the common feature of both formal and informal sector. It is defined as per employment/contract status, social security protection and the nature of the employment (Henley, Arabsheibani and Carneiro, 2006).

 

The workplace in informal sector is anarchic and fragmented. There is absence of formal employer-employee relationship. The work status of the informal workers is of inferior quality in terms of employment and remuneration. There is absence of stable, secure and gainful employment, reflecting the presence of disguised unemployment (Kalyani, Hod and Reader, 2016). So far as work conditions of informal workers are concerned, they are vulnerable to exploitation due to lack in legal and regulatory frameworks especially in unorganised sector. They work for long hours and have less bargaining power. Poor skill level of workers along with uncertain employment conditions make it difficult for informal worker to meet both ends, whereas high rate of unemployment gives power to employers to exploit the workers in absence of any collective agreement (Luebker, 2008). The extent of informality is higher when the regulatory framework is burdensome.

 

The 61.2 per cent of global employment that is informally employed is comprised of 51.9 per cent in the informal sector, 6.7 per cent in the formal sector and 2.5 per cent in a household which are more often found in the most vulnerable situations (ILO, 2018). In India, about 92 per cent of workers are engaged in informal employment, and most of them have lower earnings with meagre or no social protection. Over half the workers are self-employed and around 30 per cent are casual labourers employed on a daily basis. About 18 per cent of those employed are regular workers, and amongst them, less than 8 per cent have regular, full-time employment with social protection (IHD, 2014; Sharma, 2012). A remarkably higher proportion of the casual workers (about 93 percent) has remained out of the social security net. Nearly 56 percent of the regular wage/salaried employees are not covered under any of the specified social security benefits (NSS, 2014). During 2011-12, at all India level, about 71 percent of the workers were not eligible for paid leave and for any social security benefit (NSS, 2014). A worker’s informality level is higher when there is no verbal or no written collective agreement and terms and conditions of employment are not defined. About 93 percent of the casual workers do not have any written job contract; which indicates higher informality among them. About 66 percent of the wage/salaried workers were reported to be working without a written job contract (Labour Bureau, 2013-14).

 

Present study is confined to Haryana, the most economically developed regions in south Asia. In Haryana, work participation rate has been declining and the share of contract workers in government as well as private sectors is increasing (Kaur, 2017). The research paper is divided into four sections. Sections-1 presented the theoretical framework of the study followed by section 2 covers review of literature and hypothesis formation. Section 3 expresses the detailed methodology. It throws light on the database, development of informality index, tools and techniques used in the study. Section-5 deals with the empirical analysis of the results. Section-5 addresses the main conclusion of the investigation and recommend policy framework in this line.

 

2. REVIEW OF LITERATURE:

2.1 Various Aspects of Informality and Location of Enterprise:

Informality has been a matter of concern for researchers in recent years and studies attempting to analyse the working conditions and the extent of informality therein are increasing day-by-day. In this line, the study of Srivastava (2008), Fasih (2011), and NSS (2014) confirmed that about 56 per cent of regular wage workers and 93 per cent for casual workers are not eligible for any of the social security benefits. At the All India level, only 21.6 per cent are availing social security benefits andabout 72 percent workers are not eligible for any social security benefit. This proportion for the rural area is about 80 percent and about 64 percent for an urban area (NSS, 2014; GOI, 2015).A higher proportion of casual worker (about 98 percent) is not eligible for paid leave as compared to the regular wage/salaried workers (about 50 percent) (NSS, 2014).The higher proportion of contract workers was found in 11 Statessuch as Bihar (70.05 per cent), Odisha (58.47 per cent), Uttarakhand (51.98 per cent), Andhra Pradesh (47.87 per cent) and Haryana (47.06 per cent). The growth of contract labour in organised manufacturing in Haryana was 30.26% in 2000-01, whereas it was 46.65 % in 2010-11 (Panigrahi, 2016). Moreover, workers from rural areas are more likely to enter into the agricultural sector as self-employed workers or engage themselves in power handloom, weaving, village/cottage industries due to the low level of education and skill forcing them to accept informal work conditions (Urdinola and Tanabe 2016; Gunatilaka 2008). Contrary to this, the study of Gunatilaka (2008) found that the workers in the urban area are more informal than in rural area due to migrated workers. Formal sector is not able to absorb a large workforce, or the formal sector generates fewer jobs, so workers tend towards informal jobs. Chaudhuri et al. (2006) have found in their study differentiation in the expansion of the shadow/ informal economy in 14 major states of India over two decades. They concluded that informal economy growth is low in the states where the press is relatively free and independent and where the economy is more liberalized. Jonasson (2011) also supported the argument that variation in informality across countries was due to different degree of regulation of government. The review of studies concludes that extent of informality varies location-wise. In this context, following hypothesis is formed:

 

Ho1: There is no variation in the prevalence of informality at workplace across Haryana.

 

2.2 Extent of Informality faced by Workers employed in Formal and Informal Enterprises:

Srivastva (2013) found that social security benefits are legally binding and are available for the majority of formal workers in the organised sector. However, the situation is the opposite in the case of private households, construction and trade. A meagre percentage of the unorganised sector workers and contractual workers get formal social security arrangements. In India, about 92 percent of workers are engaged in the unorganized/informal sector for their livelihood, are not entitled to social security provisions. Most of the workers employed in the public sector/formal sector are eligible for social security (Bharat and Paul, 2015; Papola, 2008). Working conditions in small firms are highly informal. Most of the informal enterprises are operating on a small scale and are following informal work practices. The extent of informality is found to be higher for temporary and casual workers (Dougherty and Escobar 2013).

 

According to report IHD (2014), the informal sector accounted for almost 90 per cent of employment and 40 per cent of output in manufacturing in 2005-06. According to the report, the percentage share of contract workers in the organized manufacturing sector has marked up from 13 per cent in 1995, to 34 per cent in 2011. The process of informalization of the workforce comes to a halt since 2004-05. The growth of organized-sector employment has been huge after this period, and the share increased from 11.8 per cent in 2004-05 to 17.0 per cent in 2011-12. On reviewing the earlier studies, the result wraps up with conclusion that in formal enterprises,workers face lower informality extent in comparison to workers in informal sector.

 

This makes us to form following hypothesis:

Ho2: Informality Extent of workers do not Differ in Different Types of Enterprises.

 

3. METHODOLOGY:

3.1 Data Collection and Specification of Variables:

Informality extent varies across the state of Haryana. Herein, an attempt has been made to measure the effect of location and enterprise type on variation in the informality extent of workers. For this purpose, unit level data of Employment-Unemployment round of NSS (68^thround) survey has been obtained to overview a comprehensive picture of the working population. The survey comprises of a total of 4,56,999 persons (2,80,763 in rural areas and 1,76,236 in urban areas), out of which the information pertaining to workers in Haryana, i.e. 1339 workers has been extracted to measure variation in extent of informality of workers employed at different locations and in formal and informal enterprises.

 

To study informal working conditions across Haryana state, four revenue division namely Ambala, Rohtak, Hisar, Gurugram of the state have been considered. Enterprises are grouped into two types, i.e. formal and informal enterprises. Herein, proprietary and partnership enterprises are considered in the informal sector and government, public/private limited companies, corporates etc. has been considered as formal enterprises (NSS, 2014, pp-38).

 

3.2 Formation of Informality Index and Choice of Personal and Work-Related Characteristics:

There is no proper criterion to define informality. The various criteria such as size, registration, the public regulation also do not sufficiently discriminate between informality and formality. Hereby, the informal sector phenomenon appears to be a continuum of situations defined by a set of factors that may be combined to determine the extent of informality of workers. After reviewing the literature, the present study has used four dimensions to evaluate informality index as follows: 1) entitlement to paid leave 2) contribution of employer to provident fund account (CPF) or social security entitlement 3) the existence of job contract 4) nature of employment (Tijdens, Besamusca and Klaveren, 2014; Yu, 2010). First parameter is entitlement of workers for any paid monthly/annually leaves. If a worker is entitled for paid leave, he is scored 2 and the score is 0 when not entitled to paid leave. Second parameter measures irregularities in legal provision of social security for the workers such as pension fund or new pension scheme for workers and contribution of employer in the fund, healthcare and gratuity. The worker is scored 0 on the informality index if he is not availing any type of social security, the score is 1 if worker is getting one or two type of social security benefits and if worker is enjoying all three type of social security, he is scored 2. Third parameter is job contract as their employment may not be bounded by any written contract on the terms and conditions of employment. The score on informality index is 0 if worker is not having any job contract, if job contract is for less than 3 years, then worker is scored 1. Workers with job contract of more than 3 years are scored 2. Fourth parameter is nature of employment. Self-employed worker is scored 0, casual wage workers are scored 1 whereas regular wage salaried workers are scored 2 on the informality scale. Adding up these values results in summative values in the range, 0 to 8 (table-1). (Tijdens, Besamusca and Klaveren, 2014; Yu, 2010).

 

 

 

 

Table-1: Parameters and Scores to Formulate Informality Index:

S. no.	Parameters	Score=0	Score= 1	Score =2
1	Paid leave	No	Sometimes	Yes
2	Entitlement to social security (CPF)	Entitled for none	Entitled for any one or two provision of social security	Entitled for all three provisions of social security
3	Job contract type	No job contract	Job contract for< 3years	Job contract for >3 years
4	Nature of Employment	Self-Employed	Casual workers	Regular workers

 

3.3 Tools and Techniques:

The study employs two-way ANOVA to measure variation in informality score across various locations and types of enterprises in Haryana. Two-way ANOVA is an extension of the paired t test to consider two or more independent variables. Two-Way ANOVA, takes into account two main effects and one interaction effect, so there are three F tests.

 

SS_Total =SS_Between+ SS_Within

SS_Between= SS_{Factor 1}(Main Effect 1)+ SS_{Factor 2}(Main Effect 2) + SS_Interaction (Interaction Effect)

SS_{Factor 1} = F = S²_{Factor 1}/ S²_w

SS_{Factor 2}= F = S²_{Factor 2}/S²_w

SS_Interaction = F = S²_Interaction/ S²_w

 

4. RESULTS AND DISCUSSION:

Out of total 1339 workers in Haryana, 295 workers come from Ambala revenue division and 301 from Hisar revenue division. 343 and 400workers are considered from Rohtak and Gurugram Revenue division. In order to study informality variations among various types of enterprises, 770 workers from informal sector and 569 workers from formal sector enterprises are studied.

 

In an attempt to calculate the effect of location and type of enterprise on informality extent faced by worker, informality index, based on four parameters, is constructed. Informality index ranges from 0 to 8 on informality scale. The study has found absence of workers on extreme end of informality scale, indicating no worker is working under extremely informal working condition and no worker is working under fully formal working conditions.

 

Table-2: Informality Index of Informal Workers

Source: Author’s calculation from NSS 68^th round Unit Level Data (2011-12)

 

Most of the workers are facing higher informality as majority of workers, i.e. 33% and 25% have scored 1 and 2 respectively (table-2). Very few workers are on higher scale on the informality index indicating the prevalence of high degree of informality in comparison to low informality at work place. It reflects that major proportion of the worker is not entitled to paid leave, working with no job contract, casually employed and not availing social security benefits.

To measure the variation in informality extent in different revenue divisions, mean informality score is calculated. Table 3 reflects that mean informality score in Ambala revenue division for workers engaged in informal sector is 1.53, whereas, this proportion for formal sector is 4.82. This highlights higher informality for workers engaged in the informal sector. Employment of higher proportion of workers in the informal sector in Ambala revenue division reflects that majority of the workers are working under vulnerable working conditions. In the same line, higher percentage of workers are working in the informal sector with very low mean informality score in Rohtak and Hisar revenue division. The circumstances are different in case of Gurugram revenue division. Herein, mean informality score of informal sector, is not that much low as of other revenue divisions. Number of workers are higher in formal enterprises in comparison to informal enterprises. It means working conditions of informal workers in Gurugram revenue division are not so precarious. In the state of Haryana, higher percentages of the workers are working in informal enterprises, so workers are open to exploitation. The degree of vulnerability is higher in Ambala, Rohtak and Hisar revenue divisions in comparison to Gurugram revenue division. Presence of many industrial hubs and more than half of the region coming under National Capital Region (NCR) of Gurugram revenue division makes it economically and politically significant. Enterprises in the region come under regular checks and supervision by respective authorities. As a result, employers are entitling the workers with basic amenities. This result make us to reject the null hypothesis and conclude that informality extent among workers differ across Haryana.

 

The table 4 shows the significance of location in explaining variation in the informality score. It differs significantly across 4 revenue divisions, i.e. Ambala, Rohtak, Gurugram, Hisar in Haryana. Value of F_0.01 (3) =7.482 is found to be statistically significant while explaining variation in the informality extent among various division in Haryana. So far, as type of enterprise is concerned, the study has found significant variation in the informality score in the formal and informal enterprises as indicated by F_0.05 (1) = 1171.79. It concludes that both location and enterprises types are significant in explaining variation. The result rejects the null hypothesis and concludes that informality extent differ in different type of enterprises. Workers engaged in informal enterprise work under higher informal working condition in comparison to workers employed in formal enterprises.

 

 

 

 

Table 3: Comparison of Informality Extent among Formal and Informal Enterprises at Different Locations

Source: Author’s calculation from NSS 68^th round Unit Level Data (2011-12)

 

Table 4: Effect of both Location and Enterprises on Informality Score

Source: Author’s calculation from NSS 68^th round Unit Level Data (2011-12)

 

Herein, an important point of discussion is out of location and enterprises type, which one is relatively significant in explaining informality score variation. Herein, the study finds out the relative importance of the enterprise type as indicated by the value of ƞ2= 0.468 over the value of location, i.e. ƞ2 = 0.017. These results lead to the conclusion that if the worker is employed in informal enterprises of Ambala and Rohtak revenue division, he would face higher vulnerable working conditions. Also, worker would work under fair working conditions, if he is employed in formal enterprises in Gurugram revenue division.

 

Table 5 shows difference in mean informality score among two revenue divisions. While calculating the difference of informality score of Ambala and other revenue divisions, the result indicates that informality score of Ambala is lowest while of Gurugram is highest. Hereby. Table 6 reflects that informality extent among division Ambala and Rohtak is almost same. Their mean score is about 2.5, while informality score of Gurugram and Hisar revenue divisions is 3.5. Figure 1 clearly exhibit that highest mean informality score for informal sector works is about 2.1 and lowest score is nearly 1.5. While in the formal sector, highest informality score is 5 and lowest is 4.

 

5. CONCLUSION:

Informality extent estimated by informality index reflects variation in informality faced by workers across Haryana. As study concerns to four revenue divisions, workplace amenities are more entitled to workers in Gurugram and Hisar revenue division in comparison to workers employed in Ambala and Rohtak revenue division. Mean informality score of Gurugram revenue division is higher in comparison to other revenue divisions reflecting better working conditions of workers in Gurugram revenue division. Also number of workers employed in formal enterprises is higher herein, and mean informality score of formal enterprises is higher than informal enterprises. Enterprise type is relatively important in explaining variation in informality extent of workers in comparison to location. Study reflects higher informality in Ambala and Rohtak revenue division creating need for government intervention.

 

The high occurance of informality extent in all its aspects is a major threat for sustainable development. Informal employment is vulnerable, generating relatively poor returns for most people engaged in it, and failing to reward skills at levels comparable with those offered by formal employment. Informal firms should be elevated to formal firms so that their contribution to overall economic growth aggravates. Formalising the informal enterprises should mean extending recognition, voice, economic opportunity, social protection and due process to informal workers – in short, realising “decent work” for the informal enterprises.

 

Haryana government have also announced policies to accelerate formalisation. The State has come out with a path-breaking “Enterprises Promotion Policy-2015” (EPP) to actuate the State to the higher growth level by providing various types of subsidies. The policy is aligned with the ‘Make in India’,‘Digital India’ and ‘Skill India’ campaigns of the Government of India. The State government has also enacted the “Haryana Enterprises Promotion Act, 2016”. Among others, it provides for setting up of Haryana Enterprises Promotion Centre (HEPC) to provide clearances in a time-bound manner to the entrepreneurs for setting up their ventures in the State. (E-survey Haryana, 2017-18).

 

Table 5: Mean difference of Informality Score in Various Revenue Division

Location(I)	Other revenue division (J)	Mean Difference (I-J) Std. Error
Ambala revenue division	Rohtak	-.1648(.11036)
	Gurugram	-.8050* (.10666)
	Hisar	-.8981* (.11387)
Rohtak revenue division	Ambala	.1648 (.11036)
	Gurugram	-.6403*(.10228)
	Hisar	-.7333*(.10977)
Gurugram revenue division	Ambala	.8050*(.10666)
	Rohtak	.6403*(.10228)
	Hisar	-.0930(.10605)
Hisar revenue division	Ambala	.8981*(.11387)
	Rohtak	.7333*(.10977)
	Gurugram	.0930(.10605)

Source: Author’s calculation from NSS 68^th round Unit Level Data (2011-12)

 

Table 6: Mean Informality Score of Different Revenue Divisions

Divisions	Subset
	1	2
Ambala	2.4475
Rohtak	2.6122
Gurugram		3.2525
Hisar		3.3455
Sig.	.424	.826

Source: Author’s calculation from NSS 68^th round Unit Level Data (2011-12)

 

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