Most of rural agricultural workers landed in non-productive, informal urban jobs in 25 years: study

A study on productivity gap in farm and non-farm sectors, published in the Journal of Development Economics and authored jointly by economists Rajeer Jat and Bharat Ramaswami, has found that that the labourers from agriculture sector, who shifted to cities, were pushed towards non-productive sectors such as transport and restaurants making no substantial changes either in the economy or in their lives. It said that between 63% and 75% of non-farm workers are in informal employment-dominated industries that are not more productive than agriculture.

The authors suggest policy reforms, including expansion of education and healthcare facilities, to help those who migrated from the agricultural and rural economic sectors to find vocations in productive sectors around cities. The study is based on the data sourced from the Reserve Bank of India’s KLEMS (Capital, Labour, Energy, Materials and Services) data since 1999 till 2024.

Small productivity gap

The study pointed out that the productivity gap between agriculture and the informal non-farm sector is small or negligible once differences in labour share, human capital, and hours worked are accounted for. “In fact, 63-75% of non-farm workers are in industries whose productivity is statistically indistinguishable from that of agriculture. By contrast, the formal non-farm sector is substantially more productive: even after adjustments, its value-added per worker is two to three times higher than that of agriculture,” the study found and added that the large aggregate agricultural productivity gap (APG) is therefore driven primarily by the small but economically dominant formal segment of the non-farm economy.

The paper added that the real “structural dualism” in the Indian economy is between the high-productivity formal sector and the low-productivity informal sector (including agriculture), not simply between “farm” and “non-farm”.

The labour mobility between agriculture and the informal sector, the study noted, appeared relatively unconstrained as workers could move freely between them. “Much of the uncorrected productivity gap between them arises because of greater hours of employment in the informal sector. Therefore, even if the corrected productivity gap is low, the seasonality of agricultural activity is a reason to migrate,” it said.

Living standards

Talking to The Hindu, Mr. Jat said typically non-agriculture sector is more productive and labour from agriculture are pulled out and put into non-agriculture so that if they work in high productive environment, the overall living standards of a country rises. “That’s how development stories have been in many of the countries,” he said but added that a country should empower its labour force to move to more productive sectors such as Information Technology or finance sectors.

“We should move people more into those sectors instead of the restaurant sector or construction or any other non-agriculture activities which are not productive,” Mr. Jat said adding that the barriers for the labour force to entry into the formal sectors are lack of formal education, which is a college degree, and lack of English education, which is a doorway to more productive sectors such as IT and financial services.