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Determinants of Job Creation in the Formal Sector in India

Rajesh Gupta* and Parul Varma**

DOI: https://doi.org/10.62206/sajm.31.1.2024.148-167

PUBLISHED : 25 JUNE 2024

Abstract

The creation of formal jobs is an agenda for meeting the Sustainable Development Goal (SDG 8). Emerging economies like India face the challenge of decreasing number of formal jobs despite continuous economic expansion. However, the question about what drives the creation of formal jobs in India remains underexplored in the literature. This study explores the trend of the creation of formal jobs in India and probes the determinants of formal sector employment in the country. Using the state-level data of India for the period 2017-18 to 2021-22, multivariate panel data regression is deployed to assess the impact of economic expansion on net new payroll additions while controlling for crime, credit, industrialization, and capital expenditure. This study finds that the growth in the economy, formal sector firms, and capital expenditure have a significant positive effect on formal employment generation in Indian states. Rising informality is a concern for policymakers. The findings will help stakeholders design suitable policy interventions to help the formalization of the economy. However, this study could not take up district-level analysis on formalization due to data unavailability, and future researchers can take that up. States can use the findings to pinpoint the areas where policy action is required to improve the formalization of the job market. Prioritization of scarce resources can be done based on the findings of the study.

Key Words

Employment, Formal economy, Indian job market, Job creation, Labor and industry, Multivariate panel data regression

Author Biography

Rajesh Gupta
Indian Institute of Management Kashipur, Uttarakhand, India-244713; and is the corresponding author. E-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Parul Varma
Ashoka University, National Capital Region, Sonipat, Haryana, India-131029. E-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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