Wage structure and wage differentials in formal and informal sectors in India

Abstract

This paper attempts to decipher wage structure and wage differentials by gender, caste and religious groups in formal and informal sectors in India using recent 2004–05 and 2011–12 NSSO’s survey data. The study finds that the wage structure in formal and informal sectors differs a lot. The wage rates paid to workers in the informal sector are lower than that of the formal sector. The variations in wages among workers in informal sector and for casual workers in particular are negligible. The gender wage differentials are found to be more in the informal sector than in the formal sector, while caste-based wage differentials are found to be high both in formal and informal sectors of the regular labour market; it is more pronounced in the private sector of the regular formal labour market. Moreover, wage differentials between Hindus and Muslims are high in both formal and informal sectors of the regular labour market; the religion-based wage differential is observed at higher education levels. In addition to this, the average daily wages paid to women and STs in informal sector are found to be lower than the National Floor Level Minimum Wage rate. Thus, there is a need for proper implementation of minimum wage policy in India.