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MUMBAI: Graduates entering the work force are 44% less likely to be employed in the informal sector compared to those without a degree, according to a report published by Economic Advisory Council to the PM, which said education remains central to the formalisation of the economy.The report, “Formalization of Labour Market in India: Evidence from PLFS and ASUSE 2025 Unit-Level Data” said labour market outcomes continue to be shaped by structural factors, with education emerging as the strongest individual-level safeguard against informality. “Informality is structurally embedded, with education being the single most powerful individual-level deterrent to informal employment. Graduates and above [are] 43.8 percentage points less likely to be employed informally” the report authored by Soumya Kanti Ghosh, Shagishna K, and Falguni Sinha.The findings are based on integrated data from the Periodic Labour Force Survey 2025 and the Annual Survey of Unincorporated Sector Enterprises 2025.The study identified digital adoption and Govt-backed registration systems as key drivers of formalisation. It said, “Two levers for addressing these challenges simultaneously: ICT adoption/digitalisation and enterprise formalization.” It added that “…government-sponsored registration programmes such as Udyam and Udyam Assist have been introduced with the explicit aim of extending formal credit access to previously excluded firms.” A “one-unit increase in the normalized ICT adoption index is associated with a… 83% likelihood of enterprise registration”.Skilling and social factors also influence outcomes. The report said that training exerts a meaningful negative effect with trained person in vocational training and skill development 4.8 percentage points less likely to be employed in the informal sector. It added that “female household headship significantly improves employment quality by raising the likelihood of regular wage work and reducing dependence on casual labour.“At the enterprise level, digital adoption improves productivity and credit access. The report said “…one-unit increase in the normalized ICT adoption index is associated with a 76% increase in labour productivity…” It added that “…enterprises registered under government-linked Udyam or Udyam Assist access approximately 42% larger formal loans than comparable registered enterprises, with average loan amounts increasing from around Rs 3 lakh for unregistered enterprises to Rs 5.5 lakh for registered enterprises and nearly Rs 10 lakh for Udyam-linked enterprises”.The report called for stronger policy focus on education, skilling, and digital access. It said that educational investment remains the most powerful lever for reducing labour market informality and added that “vocational training and skilling programmes need to be scaled up with explicit targeting of informal workers…” It also said “…digital infrastructure and ICT access for micro and small enterprises should be treated as a formalization policy instrument...”The report highlighted persistent constraints in the informal economy, stating that unincorporated firms remain “…constrained by low productivity, limited access to institutional credit, and weak integration into formal regulatory and financial systems…” It added that digital adoption has increased after 2023-24, but gaps remain due to non-internet-using establishments.It also flagged disparities across gender and social groups. It said “…female workers are 4.8 percentage points more likely than male workers to be engaged in informal employment…” and added that women from SC, ST, and OBC households remain concentrated in lower-quality work. The report warned that informality exposes workers to income shocks and limits mobility, stating that “…workers in the informal economy generally receive lower wages and have fewer opportunities for skill development and upward mobility.“
