Rural nonfarm employment in India: structural transformation, wage determinants, and labour market segmentation

This study examines the nature and consequences of rural nonfarm employment (RNFE) in India using nationally representative microdata from the Periodic Labour Force Survey (PLFS), 2021–22. We integrate a Mincerian log-wage model, quantile regressions, and a Heckman two-step selection framework to capture the mean, distributional, and selection effects in rural wage determination. Our results show a positive average nonfarm wage premium, but the premium declines across higher wage quantiles, indicating that the expansion of the RNFE disproportionately benefits low-wage workers engaged in informal or casual activities rather than high-productivity occupations. Education, technical training, formality, and regional location predict access to high-return nonfarm jobs, whereas women, informal workers, and socially excluded groups remain systematically disadvantaged. The Heckman selection correction reveals a negative inverse-Mills ratio, consistent with adverse selection into high-return nonfarm work: many entrants are push-driven and possess lower unobserved wage productivity. Collectively, the evidence indicates that India’s RNFE has expanded in scale, albeit without a corresponding improvement in quality. It functions as a livelihood buffer in the context of agrarian stagnation while simultaneously perpetuating labour market segmentation and inequality. We discuss policy measures to enhance human capital, formalisation, and regional enterprise development so that the RNFE can transition from a survival mechanism to an inclusive engine of structural transformation.