Formal and Informal Organization of Work | Sociology for CUET by Vikash Ranjan | Sociology Guru

Formal and Informal Organization of Work

(Relevant for Sociology optional for UPSC CSE)
Paper-1 ,Unit-6 : Formal and Informal Organization of Work

Formal and Informal Organization of Work

Formal Organisation of Work:

Formal organization of work is one which is deliberately planned and designed and duly sanctioned by the competent authority. It is the organization of work as shown on the organization chart or as described by manuals and rulers. Formal organization of work is a system of consciously coordinated activities or forces of two or more persons. Individuals agree to work in an organization because they are prepared to contribute their services and receive in return certain benefits. The working of the postal department can be given as a good example. The delivery of mail depends upon certain inter-related activities like sorting of the letters, distribution of mail to the concerned postmen and delivery at the door step of the individuals concerned. Formal organization is a system of well defined jobs, each bearing a definite measure of authority, responsibility and accountability, the whole consciously designed to enable the people of the enterprise to work most effectively together in accomplishing their objects.

Formal organization of work is the frame through which organized effort is directed for achieving the goals. It has certain distinct characteristics. They are:

  • Legal Status
  • Division of work
  • Primacy of structure
  • Permanence
  • Rules and Regulations
  1. Legal Status: A distinctive feature of formal organization work is that it is backed by legal sanctions. The establishment of any organization where work is formally organized requires the enactment by parliament or legislature. Public sector organisations like Life Insurance Corporation, Food Corporation, etc., were established on the basis of enactments by the union parliament. The law which enables the organization to come into existence also confers authority. The personnel working in the various departments in the discharge of their official work are backed by the authority of law.
  2. Division of work: Division of work, which is the very basis for Formal organization of work, is made possible through formal organisation. Formal organization which indicates the levels of management, the designation of officers and their area of operation makes it very convenient for the division of work.
  3. Primacy of Structure: In formal organization of work, the emphasis is laid on the design and structure. As Urwick has noted that “absence of structure is illogical, cruel, wasteful and inefficient”. The structure is clearly defined and the roles of individuals working in organizations are clearly spelled out. The structure also describes the communication flows and the relationships between workers.
  4. Permanence: Formal organisation of work is relatively permanent than informal oganisation of work. Though they adopt to environmental conditions and change the structure and even objectives, they are generally created to last a long time. Such work not only last long, but they also grow over time.
  5. Rules and Regulations: Another important feature of a formal organization is that it is done in accordance with well-formulated rules and regulations. Officials involved in formal organizations of work cannot act as per their likes and dislikes but should function within the framework of the stipulated rules and regulations.
  6. In formal organisation of work it is important to determine the goals and objectives in the absence of which it would be difficult to direct skills of men and women to accomplish the stated goals. These goals and objectives spells out the nature and scope of the activities of different persons working in the organization. In formal organisation of work every higher level functionary coordinates the activities of the officers immediately below him.

Informal Organisation of Work:

Broadly speaking, Informal Organisation of Work is characterized by:

  1. Low levels of skill: Workers in Informal Organisation of Work have low levels of education and thus they have low levels of skills. This is the reason why they are engaged in jobs involving low technology. Worker in the formal sector have skill and there position in the labour is better.
  2. Easy entry: Getting work in informal sector is comparatively easier than in the formal sector. Any able bodied person, irrespective of the skills possessed can become a day labourer. With minimum investment the same person can become a street vendor and sell her/his wares in the market. The people need not money to invest in a shop. In this way the informal sector is able to absorb more workers who would not get any work because they are either not qualified or they do not have capital for investing in business.
  3. Low paid employment: Because of the requirement of low skill and the easy entry, work in the informal sector has low returns. Workers who offer their labour are not paid high wages. In fact, the biggest grievance against this sector is that the wages are many times below sustenance level. In many cases, low wages drive other members of the family in informal workforce because the main wage earned is not sufficient for sustaining a household. In this sense, children too may be encouraged to join the labour force.
  4. Immigrant labour: Informal sector is largely composed of immigrant. Most of the workers come to the city from rural areas in search of a livelihood. Hence migrant status is a characteristic of informal sector.

Informal organization of work is characterized by aggregate of personal contacts and interactions and the associated grouping of people. While the formal organization of work emphasizes on the structure, informal organisation of work emphasizes on personality and human emotions. The superior-subordinate relations between important officers may be influenced by the commanding personality or the powerful connections of the subordinates. In informal organization of work, roles are assigned without recognised status.

Thus informal organisations of work are ill-defined and difficult to determine. They do not have definite goals. The relations between workers, therefore, are not specific. Spontaneous, unofficial and unstructured relations lead to favourable sentiments which in turn increase the interactions and strengthen the bonds of identification. Because of informal nature, absence of goals and unstructured relationship, the formal system of controls do not operate in informal organisations.

The unorganised sector in India

Special Note on Formal And Informal Sector:

In the mid 1950s, W.Arthur Lewis developed a theoretical model of economic development based on the assumption that there was an unlimited supply of labour in most developing countries and that this vast pool of surplus labour would be absorbed as the modern industrial sector in these countries grew. It was therefore assumed that the traditional sector comprised of petty traders, small producers and a range of casual jobs would eventually be absorbed into the formal economy and disappear.

This argument became less convincing since the 1970s when case studies on informal sector in various parts of the world began to reveal the highly active existence of men, women and children crowding at the bottom of the urban economy in Third World countries. So many studies have revealed the vast number of workers, in the Third World, striving hard to survive on the fruits of their labours outside the formal sector of the economy.

  1. The formal –informal dichotomy can be regarded as a new variation on the dualism theories of the past. In the colonial era a contrast was constructed between an invasive western capitalist sector and an opposing eastern non-capitalist people’s economy. In post-colonial development theory the concept of dualism was applied to the dichotomy of traditional and modern. According to this view, the rural agricultural order was still predominantly pre-capitalist while the urban-based industrial economy was described as capitalist. In the most recent phase of the dualism doctrine capitalism is the label of only the advanced segment of the urban milieu: the formal sector. The modes of production in the lower economic terrain, rather questionably labeled as non-capitalist, are characterized as the informal sector.
  2. In operationalizing these variations on dualism, the contrasts are more significant than the specific characteristics of each segment. For instance, it’s entirely normal to describe the informal sector by summing up the absence of elements found in the formal sector. In the absence of a more analytical definition, the landscape of the informal sector becomes synonymous with the kaleidoscope of unregulated, poorly skilled and low-paid workers. Highlighting this chaotic assortment Keith Hart coined the term ‘informal economy’ in 1971.
  3. There are different terminologies used so interchangeably to signify the unorganized sector like informal sector, informal economy, and even informal labour which often highlights the most affected part of the sector, namely, the labour. “ Informal labour is a labour whose use is not governed either by state regulations or by collective agreements between workers and employers.”
  4. Informal labour has, in different instances, been viewed as labour engaged in urban small scale enterprises, as self employment, as labour engaged in “traditional activities”, as wholly unskilled labour, and as labour whose use is not subject to any rules or norms. But none of this has any sound conceptual or empirical foundation. Informality does not imply a particular mode or location of labour use; informal labour can be in self-employment, in casual wage employment, and in regular wage employment, just as it can be in urban as well as in rural areas. There is little reason to think that informal labour must be confined to ‘traditional’ and ‘modern’ activities.
  5. We do not need to assume that informal labour is unskilled; only need to recognize that its skills are acquired outside the formal education system. And all the more in the context of the neo-liberal economic policies of hire and fire where the organized sector itself is getting informalised through contractualisation, actualization, and outsourcing of labour, there are workers who are equally or even more educated and skilled, work better and even longer in so many of the organized sectors; but for no labour rights, wage, job or social security protection and for very dismal wages. The casual and contract labourers are under the working and living conditions that prevailed in the nineteenth century Europe.
  6. Since the introduction of the informal sector concept, opinion has been divided as to its socioeconomic impact. There are authors who positively point out the accelerated shift in livelihood patterns away from agriculture and villages to cities and towns in the Third World since the mid-twentieth century. But even if the masses of migrants flooding into urban areas were fortunate enough to establish a foothold, the vast majority of them could gain no access to the formal sector. It was still too small to cope with the continuous influx of newcomers.
  7. The more critical analysis of researchers, who have observed that the formal sector remained inaccessible for reasons other than the inferior quality of the new urbanites’ labour, and their other defects, rejects such an optimistic view. The failure of the newcomers’ efforts to find stable, decently paid and dignified work is in this alternative perception due mainly to a development strategy that, in the face of excess supply, seeks to keep the price of labour as low as possible, allows no room for collective action to reduce these people’s vulnerability and refuses to provide this footloose workforce with public representation. In short, the lack of registration, organization and protection does not have its origin in the free play of social forces, but it’s the deliberate product of economic interests that benefit from the state of informality in which a wide range of activities in all branches of the economy are kept, systematically and on a large scale, through evasion of labour laws and taxation.
  8. Indeed, the informal sector is not a separate and closed circuit of work and labour. There is the interaction, between the formal and informal sectors, and dependence of the latter on the former and even its subordination to it. Now with the neo-liberal economic policies there is the widespread informalization of the formal sector through downsizing, casualisation and contractualisation. In short the capitalist leaches become richer and richer by squeezing the life blood of the working force.

Informal Sector In India:

The Indian Economy is characterized by the existence of a vast majority of informal or unorganized labour employment. The Ministry of Labour, Government of India, has categorized the Informal or unorganized labour force under four groups in terms of Occupation, nature of employment, specially distressed categories and service categories.

  1. In terms of Occupation: Small and marginal farmers, landless agricultural labourers, share croppers, fishermen, those engaged 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, workers in saw mills, oil mills etc. come under this category.
  2. In terms of Nature of Employment: Attached agricultural labourers, bonded labourers, migrant workers, contract and casual labourers come under this.
  3. In terms of Specially distressed categories: Toddy tappers, Scavengers, Carriers of head loads, Drivers of animal driven vehicles, Loaders and unloaders come under this category.
  4. In terms of Service categories: Midwives, Domestic workers, Fishermen and women, Barbers, Vegetable and fruit vendors, News paper vendors etc. belong to this category.

In addition to these four categories, there exists a large section of Informal or unorganized labour force such as cobblers, Hamals, Handicraft artisans, Handloom weavers, Lady tailors, Physically handicapped self employed persons, Rikshaw pullers, Auto drivers, Sericulture workers, Carpenters, Tannery workers, Power loom workers and Urban poor.

Though the availability of statistical information on intensity and accuracy vary significantly, the extent of unorganized workers is significantly high among agricultural workers, building and other construction workers and among home based workers. According to the Economic Survey agricultural workers constitute the largest segment of workers in the unorganized sector (ie. 52% of the total workers).

As per the National Sample Survey Organization (NSSO), 30 million workers in India are constantly on the move (migrant labour) and 25.94 million women workforce has been added in the labour market from the year 2000 onwards. All the more every day 13000 Indians turn 60 years and they are expected to live another average of 17years. Unfortunately only 10% of the Indians save for old age. The tragedy is that the existing social security legislations cover only 8% of the total work force of 459 million in India.

The latest report of the NSSO about the casual workers in India between 2004-05 and 2009-10 compared to that of the period between 1999 – 2000 and 2004-05 very clearly shows that there is significant increase in the number of casual workers and decline in the number of regular workers.

This report shows a substantial shift between 1999-00 and 2009-10 in the structure of the labour force which can be broadly divided in to 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 are casual labourers.)

All these NSSO reports are clear evidences to prove that the labour market of India has been undergoing tremendous transformations, including growth of informal sector activities, deterioration in the quality of employment (in terms of job security, terms and conditions at work), Weakening of worker organizations and collective bargaining institutions, marked decline in social security etc. To a greater extent, these transformation could be related to the ongoing globalization process and the resultant efforts on the part of employers to minimize the cost of production to the lowest levels. It is also evident that most of these outcomes are highly correlated and mutually reinforcing. A closer analysis suggests that the growing informalisation of labour market has been central to most of these transformations, which inter alia highlights the utility of understanding the growth of unorganized sector in India and its implications.

Many thought that India’s growth could do no wrong, and took the administrative versions and interpretations for granted. Now it comes to a point that none of these can be taken for granted. Growth is slow, inflation is structural and structure of employment is not enough to cater to the growing labour force.

Growing prominence of Informal (unorganized) sector in India:

Predominance of informal employment has been one of the central features of the labour market scenario in India. This national level pattern of informal workers occupying around 90% of the workforce is more or less similar in the case of most of the prominent states in the country. Among the unorganized sector workers, a considerable proportion (about 65%) is engaged in agricultural sector, which in turn indicates the prominence of rural segment in the informal economy.

  1. The growth of formal employment in the country has always been less than that of total employment, indicating a faster growth of employment in the informal sector. Available data suggests that within the formal sector also the proportion of informal / unorganized workers are on the increase. For instance, by providing a comparison of the NSSO Employment Data for 55th and 61st Rounds (for 1999-2000 and 2004- 05 respectively) the NCEUS (2007) explains that the country is currently in a state of “informalisation of the formal sector”, where the entire increase in the employment in the organized sector over this period has been informal in nature.
  2. It is widely acknowledged that the informal sector in India suffers from a low productivity syndrome, compared to the formal sector. The prominent features of the sector are lower real wages and poor working / living conditions.
  3. Further, the sector is characterized by excessive seasonality of employment (especially in the farm sector), preponderance of casual and contractual employment, atypical production organizations and work relations, absence of social security measures and welfare legislations, negation of social standards and worker rights, denial of minimum wages and so on. Poor human capital base (in terms of education, skill and training) as well as lower mobilization status of the work force further add to the vulnerability and weaken the bargaining strength of workers in the informal sector. Thus, the sector has become a competitive and low cost device to absorb labour, which cannot be absorbed elsewhere, whereas any attempt to regulate and bring it into more effective legal and institutional framework is perceived to be impairing the labour absorbing capacity of the sector.

Globalization and growth of informal sector:

  1. With the advent of Globalization and resultant reorganization of production chains led to a situation where production systems are becoming increasingly atypical and non-standard, involving flexible workforce, engaged in temporary and part-time employment, which is seen largely as a measure adopted by the employers to reduce labour cost in the face of stiff competition. No doubt, it obviously indicates that these flexible workers in the new informal economy are highly vulnerable in terms of job security and social protection, as they are not deriving any of the social protection measures stipulated in the existing labour legislations. The insecurities and vulnerabilities of these modern informal sector labour are on the rise, as there is a visible absence of worker mobilization and organized collective bargaining in these segments owing to a multitude of reasons. The alarming expansion of informal sector, in recent times, has adversely affected employment and income security for the larger majority of the workforce, along with a marked reduction in the scale of social welfare / security programme.
  2. In our “global” cities such as Bangalore, which are being show-cased as the new faces of an affluent and vibrant India, there are lakhs of people who rely on manual labour for their own livelihood. The housemaids, security guards, construction workers, garment workers, cobblers, beedi workers, agarbati
  3. workers, drivers and many others have a very different story to tell. Their incomes have not grown at the
  4. staggering rate of their employers; indeed adjusted for inflation their incomes have often fallen over the last two and half decades, driving them into deeper poverty.

The major characteristics of the Informal or unorganized workers:

  1. The unorganized labour is overwhelming in terms of its number range and therefore they are omnipresent throughout India.
  2. As the unorganized sector suffers from cycles of excessive seasonality of employment, majority of the unorganized workers does not have stable durable avenues of employment. Even those who appear to be visibly employed are not gainfully and substantially employed, indicating the existence of disguised unemployment.
  3. The workplace is scattered and fragmented.
  4. There is no formal employer – employee relationship
  5. In rural areas, the unorganized labour force is highly stratified on caste and community considerations. In urban areas while such considerations are much less, it cannot be said that it is altogether absent as the bulk of the unorganized workers in urban areas are basically migrant workers from rural areas.
  6. Workers in the unorganized sector are usually subject to indebtedness and bondage as their meager income cannot meet with their livelihood needs.
  7. The unorganized workers are subject to exploitation significantly by the rest of the society. They receive poor working conditions especially wages much below that in the formal sector, even for closely comparable jobs, ie, where labour productivity are no different. The work status is of inferior quality of work and inferior terms of employment, both remuneration and employment.
  8. Primitive production technologies and feudal production relations are rampant in the unorganized sector, and they do not permit or encourage the workmen to imbibe and assimilate higher technologies and better production relations. Large scale ignorance and illiteracy and limited exposure to the outside world are also responsible for such poor absorption.
  9. The unorganized workers do not receive sufficient attention from the trade unions.
  10. Inadequate and ineffective labour laws and standards relating to the unorganized sector.
Social security measures:

It is rightly true that when independent India’s constitution was drafted, social security was specially included in List III to Schedule VII of the constitution and it was made as the concurrent responsibility of the central and state governments.

A number of directive principles of state policy relating to aspects of social security were incorporated in the Indian constitution. The initiatives in the form of Acts such as the Workmen’s Compensation Act (1923), the Industrial Disputes Act (1947), the Employees State Insurance Act (1948), the Minimum Wages Act (1948), the Coal Mines Provident Funds and Miscellaneous Provisions Act (1948), The Employees Provident Fund and Miscellaneous Provisions Act (1952), the Maternity Benefit Act (1961), the Seamen’s Provident Fund Act (1966), the Contract Labour Act (1970), the Payment of Gratuity Act (1972), the Building and Construction Workers Act (1996) etc. reveal the attention given to the organized workers to attain different kinds of social security and welfare benefits.

Unorganized Sectors’ Social Security Act (2008 reveal the attention given to the Unorganized (Informal Sector)workers to attain different kinds of social security and welfare benefits Though it has been argued that the above Acts are directly and indirectly applicable to the workers in the unorganized sector also, their contribution is very negligible to the unorganized workers.

Critics opinion:

  1. Both the central and state governments have formulated certain specific schemes to support unorganized workers which fails in meeting with the real needs and requirements of the unorganized sector labour force. This becomes clear even when the highly proclaimed Mahatma Gandhi National Rural Employment Guarantee Act -2005 (NREGA), though it is a breakthrough, doesn’t have common wage in different states and limits itself only to hundred day’s work for those registered worker under the Act. What about the rest of the days in an year? As per this Act, the work guarantee applies in rural areas only, what about the urban poor?
  2. Looking at the recent Unorganized Sectors’ Social Security Act (2008) , one really wonders if there is any provision for an unorganized worker in this Act other than some guidelines about the available social security schemes in the country. How can it be called an Act unless it has the legal binding and provisions of rights to work and entitlements under it?
  3. Here as per the Act nothing is mentioned about what constitutes appropriate and adequate social security for the vast mass of unorganized workers and their dependents, what eligibility criteria, if any, ought to be prescribed, what will be the scale of benefits that the workers and their families are entitled to receive and under what conditions, what will be the funding arrangements that must be put in positions to meet the cost of social security and so on. Aren’t the unorganized workers of this country entitled to receive, minimum standards of social security and labour rights, on the scale and spread adumbrated in the relevant ILO convention drawn up more than 50 years ago? Therefore, this law which does not deal with the issue of unemployment, its regulation, wages, and conditions of work and so on is not merely incomplete but dysfunctional if it proceeds to deal with social security on a stand alone basis.
  4. Even the provisions and procedure of the Minimum Wages Act (1948) is so vague and futile that different states of India have fixed abysmally meagre wages and that too with so much of variations from state to state.
  5. In fact a comprehensive Act, catering to the security needs of the unorganized sector such as Food, Nutrition, Health, Housing, Employment, Income, Life and accident, and old age remains a dream in India. Still the cries of the unorganized sector goes unattended with the governments laying red carpets for the corporates and so called investors at the expense and sacrifice of the working class.

Inspite of the fact that not much has been done in providing social security cover to the rural poor and the unorganized labour force, the country has made some beginning in that direction.

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