Most rural agricultural workers ended up in low‑productivity, informal urban jobs over 25 years: study
A landmark study published in the Journal of Development Economics finds that India’s rural workers leaving agriculture over the past quarter-century largely migrated into informal, low‑productivity urban industries—such as transport, restaurants and construction—delivering little improvement in either overall economic productivity or individual livelihoods. Drawing on Reserve Bank of India KLEMS (Capital, Labour, Energy, Materials and Services) data from 1999 to 2024, economists Rajveer Jat and Bharat Ramaswami conclude that between 63% and 75% of non‑farm workers are employed in industries whose productivity is no better than agriculture after accounting for differences in labour share, human capital and hours worked.
What the study found
The research isolates a stark divide within India’s non‑farm economy. While the formal non‑farm segment is substantially more productive—its value added per worker remains two to three times higher than that of agriculture even after adjustments—the overwhelming majority of non‑farm workers are concentrated in informal industries where productivity is statistically indistinguishable from farming.
As a result, the authors argue, the widely cited aggregate agricultural productivity gap (APG) is driven primarily by the relatively small but economically dominant formal segment of the non‑farm economy, rather than by the non‑farm sector as a whole. The paper characterises the true “structural dualism” in India as one between the high‑productivity formal sector and the low‑productivity informal sector (including agriculture), rather than a simple farm versus non‑farm dichotomy.
Mobility and the pull of steady hours
The study finds that movement between agriculture and the informal non‑farm sector appears relatively unconstrained; workers can and do shift between the two. Much of the uncorrected productivity gap stems from greater and more continuous hours of employment available in informal urban industries compared with the seasonal nature of agricultural work. Even where productivity per worker is similar after adjustments, the steadier availability of work in cities remains a strong reason for migration.
Implications for living standards
Speaking to The Hindu, co‑author Rajveer Jat noted that in typical development trajectories, labour leaves agriculture for more productive non‑agricultural activities, which lifts overall living standards. “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.
However, he cautioned that in India, many workers moving out of agriculture have been absorbed by low‑productivity informal industries rather than by high‑productivity formal 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,” Jat said, pointing to information technology and financial services as examples of higher‑productivity destinations.
Barriers to accessing high‑productivity jobs
The authors identify a set of barriers that limit entry into formal, more productive sectors. According to Jat, lack of formal education—particularly college degrees—and inadequate English proficiency are key obstacles to moving into sectors such as IT and finance. The paper calls for policy reforms to remove these barriers, including expanding access to quality education and strengthening healthcare—measures that would improve human capital and help migrants compete for productive urban employment.
Methodology and scope
The analysis is based on RBI’s KLEMS dataset, which tracks inputs and productivity across sectors from 1999 through 2024. By adjusting for labour share, human capital and hours worked, the study compares productivity in agriculture, informal non‑farm industries, and the formal non‑farm sector, allowing for a more precise assessment of where productivity gains are—and are not—occurring as workers shift out of farming.
Why it matters
The findings suggest that simply moving workers out of agriculture does not guarantee productivity gains or higher living standards if the transition channels them predominantly into the informal non‑farm economy. Without policies that broaden access to education and healthcare and lower barriers to entry into formal, skill‑intensive industries, the structural transformation of India’s workforce risks stalling in low‑productivity segments—limiting both individual advancement and aggregate economic growth.
