The self-employment paradox in India: growing numbers, declining returns and deepening inequality

Self-employment accounts for nearly 58% of India’s workforce, yet this expansion has been accompanied by stagnant growth in formal job creation and widening income inequality. Using four rounds of unit-level data from the Employment-Unemployment Survey (2004–2005, 2011–2012) and the Periodic Labour Force Survey (2018–2019, 2023–2024), this study examines the growth and changing composition of non-agricultural self-employment and evaluates its implications for earnings and wage inequality. Findings show that rural non-agricultural self-employment has almost doubled from 50.9 million workers in 2004–2005 to 100 million in 2023–2024, along with a decline in casual employment. Despite this expansion, real earnings of self-employed workers have consistently remained lower than those of regular workers, and this gap has widened in sectors such as agriculture, construction, and transport. Inequality deepens in self-employment, with the Theil T index increasing from 0.316 to 0.333. Decomposition results show that while education, sector and region explain 72% of the income gap, but a substantial portion remains unexplained, reflecting power asymmetries, institutional exclusion, and structural segmentation rather than individual characteristics. The study concludes that while self-employment continues to absorb labour in the absence of adequate formal job creation, it reproduces income vulnerability and reinforces inequality within the labour market.