Economics Polity & Governance Prelims cum Mains

EPFO data not the right gauge of employment level

The News

  • The recent downward revision in the Employees’ Provident Fund Organisation (EPFO) data for September-June does not imply a decrease in formal sector employment, according to labour economists, who add that there are several problems with the EPFO data and caution against its use as a gauge of formal sector employment in the country.

What is Employee Provident Fund (EPF)?

  • The Employee Provident Fund (EPF) is a retirement benefit applicable only to salaried employees.
  • It is a fund to which both the employee and employer contribute fixed amount (percent) of the former’s basic salary amount each month.
  • This percentage is pre-set by the government.
  • At present, the entire EPF amount is tax-free at the time of withdrawal if the employee has completed five years of continuous service.

 

Employees’ Provident Fund Organisation (EPFO)

  • EPFO is a statutory body of Union Government that comes under the aegis of Ministry of Labour and Employment.
  • It is one of the largest social security organisations in India in terms volume of financial transactions undertaken and the number of covered beneficiaries.
  • Its headquarters is located in New Delhi.
  • The main functions of the EPFO: Administers a compulsory contributory Provident Fund Scheme (1952), Pension Scheme (1995) and Insurance Scheme (1976)

Background

  • The EPFO revised down the net enrolment numbers for the period from September 2017 to May 2018 by 5.54 lakh (12.4%) to 39.2 lakh from its earlier estimate of 44.74 lakh made last month.
  • According to Economists, showing a decline in net enrolment numbers, cannot be used for any correlation as the picture is complicated.

 

Lacunas with the EPFO data

  • EPFO data is a very complicated piece of work. There is a lack of clarity about the methodology being followed for this dataset.
  • It is not clear what happens when a person changes jobs very frequently.
  • No clarity over what happens when someone applies for a new policy with an already existing one.
  • People who get low wages have been outside the EPFO net; enterprises may not have registered at all, or may not have admitted that they employ enough people to meet the EPFO threshold.
  • It does not make clear whether the additions are to the total number of members (about 150 million) or to the number of active members who actually make payments and who number only about 60 million.
  • The estimates may include temporary employees whose contributions may not be continuous for the entire year.
  • Changes in EPFO numbers are not always indicative of a change in employment levels since there are several reasons why EPFO numbers might change without a corresponding change in employment

Examples:

  • A worker quitting their job to start their own company, a worker being transferred to a foreign branch of an Indian company, employees retiring, and employees quitting once they get married. Of these, only the last two affect employment levels.
  • A company employing 19 people may not be in EPFO, but as soon as it adds one more employee, all 20 are added to EPFO. But the actual increase in employment has only been a single person.

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