Formal & Informal Organization of Work | Sociology Optional for UPSC (Notes) PDF Download

Formal Organization of Work

• A formal organization of work is methodically planned, designed, and authorized by the relevant authorities.
• It represents the organization of work as depicted in organizational charts or outlined in manuals and rules.
• This type of organization is characterized by consciously coordinated activities involving two or more individuals who agree to contribute their services in exchange for specific benefits.
• For instance, the postal department exemplifies a formal organization where tasks like sorting letters, distributing mail to postmen, and delivering mail to recipients are interrelated activities.
• Formal organization ensures well-defined jobs with clear measures of authority, responsibility, and accountability, all aimed at enabling people to work together effectively towards common objectives.

Characteristics of Formal Organization of Work

• Legal Status: Formal organizations operate under legal sanctions. Their establishment often requires parliamentary or legislative enactment. For instance, public sector organizations like the Life Insurance Corporation and the Food Corporation were established through such legal frameworks.
• Division of Work: Formal organization facilitates the division of work by clearly indicating management levels, officer designations, and areas of operation.
• Primacy of Structure: Emphasis is placed on the design and structure of the organization. A well-defined structure clarifies individual roles and communication flows, enhancing efficiency.
• Permanence: Formal organizations tend to be more permanent than informal ones. While they may adapt to environmental changes, they are generally designed to endure and grow over time.
• Rules and Regulations: Formal organizations operate within a framework of established rules and regulations, ensuring that officials adhere to stipulated guidelines.

Formal organizations of work play a crucial role in directing organized efforts towards achieving specific goals. They provide a structured framework that ensures coordination and effectiveness in the pursuit of objectives.

Informal Organization of Work

• Low levels of skill: Workers in the informal sector often have low levels of education and skills, which is why they are engaged in low-technology jobs. In contrast, workers in the formal sector typically possess higher skills and enjoy better positions in the labor market.
• Easy entry: Entering the informal sector is generally easier than in the formal sector. Any able-bodied person, regardless of their skills, can become a day laborer or a street vendor with minimal investment. This allows the informal sector to absorb more workers who may not be qualified or lack capital for business investments.
• Low-paid employment: Due to the low skill requirements and easy entry, jobs in the informal sector often come with low wages. Many workers in this sector earn wages far below the sustenance level, leading to situations where other family members, including children, may need to join the labor force to make ends meet.
• Immigrant labor: The informal sector is largely composed of immigrant workers, with many individuals coming to cities from rural areas in search of a livelihood. Migrant status is a common characteristic of the informal sector.

Characteristics of Informal Organization of Work

• The informal organization of work is characterized by a network of personal contacts and interactions, emphasizing personality and human emotions over structure. While the formal organization focuses on defined roles and responsibilities, the informal organization revolves around spontaneous and unofficial relationships that foster positive sentiments and strengthen bonds.
• In the informal organization, roles are assigned without recognized status, making the relationships between workers less specific. The absence of formal goals and unstructured connections differentiates the informal organization from the formal system of controls.
• Overall, the informal organization of work is fluid and dynamic, driven by personal relationships and informal interactions that shape the work environment.

The Unorganised Sector in India

• In the mid-1950s, W. Arthur Lewis proposed a theoretical model of economic development suggesting that developing countries had an unlimited supply of labor. He believed this surplus labor would eventually be absorbed by the growing modern industrial sector.
• Lewis assumed that the traditional sector, consisting of petty traders, small producers, and various casual jobs, would gradually be absorbed into the formal economy and eventually fade away.

Shift in Perspective:

• Since the 1970s, this assumption has become less convincing. Case studies from different parts of the world started to reveal a vibrant and active informal sector, with men, women, and children struggling to survive at the bottom of the urban economy in Third World countries.
• Numerous studies highlighted the significant number of workers in these countries striving to make a living outside the formal sector.

Formal-Informal Dichotomy:

• The formal-informal dichotomy can be seen as a modern variation of past dualism theories. During the colonial era, a contrast was drawn between a Western capitalist sector and a non-capitalist people’s economy in the East.
• In post-colonial development theory, dualism was applied to the divide between traditional and modern economies. The rural agricultural sector was viewed as predominantly pre-capitalist, while the urban industrial economy was labeled as capitalist.
• In the latest phase of dualism, capitalism is associated only with the advanced segment of the urban economy—the formal sector. The lower economic terrain, labeled as non-capitalist, is characterized as the informal sector.

Defining the Informal Sector:

• When operationalizing these variations on dualism, the contrasts between the formal and informal sectors are more significant than the specific characteristics of each segment.
• The informal sector is often defined by the absence of elements found in the formal sector. Without a more analytical definition, the informal sector becomes synonymous with unregulated, poorly skilled, and low-paid workers.

Coining of 'Informal Economy':

• Keith Hart introduced the term 'informal economy' in 1971 to describe this chaotic assortment of workers.

Terminology for Unorganised Sector:

• Various terms such as informal sector, informal economy, and informal labor are used interchangeably to signify the unorganized sector. Informal labor specifically highlights workers not governed by state regulations or collective agreements.
• Informal labor has been viewed in different contexts, including urban small-scale enterprises, self-employment, traditional activities, and unskilled labor. However, there is no solid conceptual or empirical basis for these distinctions.
• Informal labor can exist in self-employment, casual wage employment, and regular wage employment, regardless of location. It does not imply a particular mode or location of labor use.
• Informal labor is not necessarily unskilled; it encompasses skills acquired outside the formal education system. In the context of neoliberal economic policies, even workers in the organized sector can be informalized through contractualization, actualization, and outsourcing.
• Casual and contract laborers often face working and living conditions reminiscent of 19th-century Europe, despite being equally or more educated and skilled.

Impact of Informal Sector:

• Since the introduction of the informal sector concept, opinions have been divided regarding its socioeconomic impact. Some authors highlight the accelerated shift in livelihood patterns from agriculture and villages to cities and towns in the Third World since the mid-20th century.
• However, even when migrants successfully establish a foothold in urban areas, the majority struggle to access the formal sector, which remains too small to accommodate the continuous influx of newcomers.
• Critical analyses reject the optimistic view by arguing that the formal sector's inaccessibility is not solely due to the inferior quality of new urbanites’ labor. Instead, it is attributed to a development strategy that keeps labor costs low, restricts collective action, and denies public representation to this transient workforce.
• The lack of registration, organization, and protection in the informal sector is not a result of social forces but a deliberate outcome of economic interests benefiting from the evasion of labor laws and taxation.

Interaction Between Formal and Informal Sectors:

• The informal sector is not a closed circuit; it interacts with the formal sector and is dependent on it. With neoliberal economic policies, the formal sector is increasingly informalized through downsizing, casualization, and contractualization.
• Capitalists become wealthier by exploiting the working force, blurring the lines between formal and informal labor.

Informal Sector in India

The Indian economy is marked by a large majority of informal or unorganized labor employment. The Ministry of Labour, Government of India, has classified the informal or unorganized labor force into four groups based on occupation, nature of employment, specially distressed categories, and service categories.

1. In terms of Occupation:

• Small and marginal farmers, landless agricultural laborers, sharecroppers, fishermen, those involved in animal husbandry, beedi rolling, labeling and packing, building and construction workers, leather workers, weavers, artisans, salt workers, workers in brick kilns and stone quarries, sawmills, oil mills, etc.

2. In terms of Nature of Employment:

• Attached agricultural laborers, bonded laborers, migrant workers, contract and casual laborers.

3. In terms of Specially Distressed Categories:

• Toddy tappers, scavengers, carriers of head loads, drivers of animal-driven vehicles, loaders and unloaders.

4. In terms of Service Categories:

• Midwives, domestic workers, fishermen and women, barbers, vegetable and fruit vendors, newspaper vendors, etc.
• In addition to these categories, there is a significant section of the informal or unorganized labor force, including cobblers, hamals, handicraft artisans, handloom weavers, lady tailors, physically handicapped self-employed persons, rickshaw pullers, auto drivers, sericulture workers, carpenters, tannery workers, power loom workers, and the urban poor.
• Despite variations in the availability and accuracy of statistical information, the extent of unorganized workers is notably high among agricultural workers, building and construction workers, and home-based workers. According to the Economic Survey, agricultural workers constitute the largest segment of workers in the unorganized sector, accounting for 52% of the total workers.
• According to the National Sample Survey Organization (NSSO), 30 million workers in India are constantly on the move (migrant labor), and 25.94 million women have entered the labor market since 2000. Additionally, every day, 13,000 Indians turn 60, with an average life expectancy of another 17 years. Unfortunately, only 10% of Indians save for old age. Tragically, existing social security legislation covers only 8% of the total workforce of 459 million in India.
• The latest NSSO report on casual workers in India between 2004-05 and 2009-10, compared to the period between 1999-2000 and 2004-05, clearly shows a significant increase in the number of casual workers and a decline in the number of regular workers.
• This report indicates a substantial shift in the structure of the labor force between 1999-00 and 2009-10, broadly categorized into self-employed, regular, and casual workers. Casual workers are employees who do not enjoy the same benefits and security as tenured employees; all daily wage employees and some categories of contract employees fall under this category.
• These NSSO reports provide clear evidence that the labor market in India is undergoing significant transformations, including the growth of informal sector activities, deterioration in the quality of employment (in terms of job security and working conditions), weakening of worker organizations and collective bargaining institutions, and a marked decline in social security. These transformations are largely linked to the ongoing globalization process and employers' efforts to minimize production costs. It is evident that most of these outcomes are highly correlated and mutually reinforcing. A closer examination suggests that the growing informalization of the labor market is central to most of these transformations, highlighting the importance of understanding the growth of the unorganized sector in India and its implications.
• Many believed that India’s growth was unstoppable and took administrative versions and interpretations for granted. However, the situation has reached a point where none of these can be taken for granted. Growth is slow, inflation is structural, and the structure of employment is insufficient to cater to the growing labor force.

Growing Prominence of Informal (Unorganized) Sector in India

• The predominance of informal employment has been a central feature of the labor market in India. At the national level, around 90% of the workforce is informal, a pattern consistent across most prominent states. Among unorganized sector workers, a significant proportion (about 65%) is engaged in the agricultural sector, highlighting the importance of the rural segment in the informal economy.
• The growth of formal employment in the country has consistently been lower than that of total employment, indicating faster growth of employment in the informal sector. Data suggests that even within the formal sector, the proportion of informal/unorganized workers is increasing. For instance, comparisons of NSSO Employment Data for the 55th and 61st Rounds (1999-2000 and 2004-05) reveal a state of “informalization of the formal sector,” where the entire increase in organized sector employment during this period has been informal in nature.
• It is widely acknowledged that the informal sector in India suffers from low productivity compared to the formal sector. Key characteristics of the sector include lower real wages and poor working/living conditions. Additionally, the sector is marked by excessive seasonality of employment (especially in agriculture), prevalence of casual and contractual employment, atypical production organizations and work relations, absence of social security measures and welfare legislation, violation of social standards and worker rights, denial of minimum wages, and so on.
• Poor human capital (in terms of education, skill, and training) and lower mobilization status of the workforce further add to vulnerability and weaken workers' bargaining power in the informal sector. Consequently, the sector has become a competitive and low-cost means of absorbing labor that cannot be accommodated elsewhere, while any attempt to regulate and bring it into a more effective legal and institutional framework is seen as impairing the labor-absorbing capacity of the sector.

Globalization and Growth of the Informal Sector

• With the advent of globalization and the consequent reorganization of production chains, production systems are becoming increasingly atypical and non-standard, involving a flexible workforce engaged in temporary and part-time employment. This shift is largely viewed as a strategy by employers to reduce labor costs in the face of intense competition. However, it also indicates that these flexible workers in the new informal economy are highly vulnerable in terms of job security and social protection, as they do not receive any of the social protection measures mandated by existing labor legislation.
• The insecurities and vulnerabilities of modern informal sector labor are on the rise due to the visible absence of worker mobilization and organized collective bargaining in these segments for various reasons. The alarming expansion of the informal sector in recent times has negatively impacted employment and income security for the majority of the workforce, alongside a notable reduction in the scale of social welfare/security programs.
• In “global” cities like Bangalore, which are showcased as the new faces of an affluent and vibrant India, there are countless individuals who depend on manual labor for their livelihoods. Housemaids, security guards, construction workers, garment workers, cobblers, beedi workers, agarbati workers, drivers, and many others have a very different narrative. Their incomes have not increased at the staggering rate of their employers; indeed, when adjusted for inflation, their incomes have often fallen over the last two and a half decades, pushing them deeper into poverty.

Major Characteristics of Informal or Unorganized Workers

• Widespread Presence: The unorganized labor force is overwhelming in number and is omnipresent throughout India.
• Seasonality and Disguised Unemployment: The unorganized sector suffers from cycles of excessive seasonality of employment. Majority of unorganized workers do not have stable, durable avenues of employment. Even those who appear to be employed are often not gainfully and substantially employed, indicating the existence of disguised unemployment.
• Scattered and Fragmented Workplaces: The workplace is scattered and fragmented, lacking a formal employer-employee relationship.
• Caste and Community Stratification: In rural areas, the unorganized labor force is highly stratified along caste and community lines. While such considerations are less pronounced in urban areas, they are not entirely absent, as a significant portion of unorganized workers in urban areas are migrants from rural areas.
• Indebtedness and Bondage: Workers in the unorganized sector often face indebtedness and bondage, as their meager income is insufficient to meet their livelihood needs.
• Exploitation: Unorganized workers are significantly exploited by the rest of society. They experience poor working conditions, particularly wages that are much lower than those in the formal sector for comparable jobs, where labor productivity is similar. The quality of work and terms of employment are inferior, both in terms of remuneration and employment.
• Primitive Technologies and Feudal Relations: Primitive production technologies and feudal production relations are common in the unorganized sector, hindering the adoption of higher technologies and better production relations. Large-scale ignorance, illiteracy, and limited exposure to the outside world contribute to this poor absorption.
• Neglect by Trade Unions: Unorganized workers receive insufficient attention from trade unions, and inadequate and ineffective labor laws and standards regarding the unorganized sector further exacerbate their situation.

Social Security Measures in India

• When India gained independence, the Constitution included social security in List III of Schedule VII, making it a shared responsibility of the central and state governments. Various Acts like the Workmen’s Compensation Act (1923) and the Employees State Insurance Act (1948) were enacted to ensure social security and welfare benefits for organized workers.
• The Unorganized Sectors’ Social Security Act (2008) aimed to address the needs of unorganized workers, but its impact has been minimal. Critics argue that government schemes for unorganized workers, such as the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA), fall short in meeting their real needs. The NREGA, despite being a significant step, lacks uniform wage standards across states and only guarantees a hundred days of work annually.
• The Unorganized Sectors’ Social Security Act (2008) raises questions about its effectiveness, as it lacks legal binding and clear provisions for unorganized workers. It does not specify what constitutes adequate social security, eligibility criteria, or funding arrangements. Critics believe that unorganized workers deserve minimum standards of social security and labor rights, as outlined in International Labour Organization (ILO) conventions.
• Additionally, the Minimum Wages Act (1948) is criticized for allowing states to set low and varying wage standards. A comprehensive Act addressing the security needs of the unorganized sector in areas like Food, Nutrition, Health, Housing, Employment, Income, Life and Accident, and Old Age remains a goal in India. The concerns of the unorganized sector are often overlooked, with the government prioritizing corporate interests and investments over the welfare of the working class.