Consumption Nature of Indian Informal Workers: Engel’s Law Revisited

Abstract

The level of informal employment in the Indian labor market shows the importance of investigating the nature of consumption among informal workers and determining the budget share among them. The Working-Leser model is used to identify the necessary and luxury goods among Indian informal workers. The budget share of food and non-food items among them will help us to validate Engel’s law. Informal workers are divided into three categories: self-employed workers, employees in the informal sector, and informal employees in the formal sector. Using the 68th round of the National Sample Survey data on Indian Employment and Unemployment for 2011–2012, we find food items, addictive items (e.g., alcohol and tobacco products), entertainment items, fuel, lights, and other non-food items are necessary, while health, education, jewellery and personal transport are luxury items for all types of informal workers in India. Engel’s law is therefore validated among the informal workers. The policy recommendation is that the government needs to spend more on health and education for informal workers. Spending more on these would not only improve the skills and efficiency of workers but also reduce their vulnerability.