Impact of the Changing Labor Force on the Rate of Employment in Urban India

Population growth has transformed the structure of developing countries' labor markets from dual sector to tri-sector. The third sector is the informal labor market. This paper attempts to analyze how changes in demographic factors have affected the natural rate of employment among the informal labor force and how much of the change in the overall rate of employment is attributable to the change in the employment rate of formal and informal workers. The total informal employment effect has been decomposed into the pure demographic effect and the pure informal employment effect. Subsequently the overall employment rate is decomposed into the informal employment effect and the formal employment effect. The reference period for the study is 1981 to 2001.In the case of males, the employment effect outweighed the demographic effect. In the case of females, the demographic effect was stronger.