EPFO enrolment data alone is no proof of job creation

When PM Narendra Modi handed out appointment letters to 75,000 government employees a few days ago, he also claimed that new formal jobs are being created, as manifested by data on new registrations in the Employment Provident Fund Organisation (EPFO). This piece examines that claim.

The first point is that official sources of data on jobs in India consist of three types: administrative data, survey data and census data. Administrative data in most developing countries is subject usually to large margins of error, usually made evident when surveys on the same subject are conducted.

Survey data, by definition, is collected on the basis of a representative sample of the entire population; it is normally subject to a narrow margin of error. In India, the quality of surveys conducted by the National Sample Survey Organisation has always been of a very high quality.

Yet, often in recent times, aspersions are cast and questions raised, when it suits governments, on survey results. Censuses can only be only once a decade or so, regardless of whether it is economic or population census, given the cost and the time they take.

EPFO data is administrative. They suffer from additional infirmities. The ‘provisional’ payroll data of EPFO released on 20 October, 2022, highlights that the EPFO has added 16.94 lakh net members in August 2022. A year-on-year comparison of payroll data reflects an increase of 14.40% in net membership addition in August, 2022 as compared to August, 2021.

Of the total 16.94 lakh members added during the month, 9.87 lakh new members have come under the EPFO for the first time. Of 9.87 lakh new members added, 58.32% are in the 18-25 age group. This age group signifies a crucial stage in the earning capacity of an individual who joins an organised workforce on completion of his/her education.

The government has subsequently used this increase in net enrolment as an indicator of a spurt in employment generation. A close examination of this claim, however, shows that all net enrolments might not have come from new employment creation.

A part of the increased net enrolment comes from the enrolment of contract workers in establishments, where the EPFO becomes applicable. If you are an employer with 20 workers or more, it is mandatory for you to register under the EPF. All contractual employees of such establishments employed directly or through a contractor, or both, must be enrolled under the EPF & MP Act, 1952 (hereafter ‘Act’). This has become mandatory following the judgement of the Supreme Court in M/S. Pawan Hans Limited and Others v. Aviation Karmachari Sanghatana and others.

The judgement dated Jan 17, 2020, under the Act clarified that contractual employees, who draw wages directly or indirectly, are entitled to PF. Further, contract details are to be furnished by all principal employers to the EPFO to ascertain compliance status of all contractual employees. As a result, there has been a spurt in enrolment of contractual workers in the EPFO. This contention is strengthened by the fact that state-wise payroll figures show that a month-on-month growing trend in net member addition was observed in UP, West Bengal, Odisha, Jharkhand, Bihar etc. These states have a high proportion of contract workers and it is likely they were brought under the EPF coverage following the SC judgement. Such formalisation of contract workers is definitely welcome but it does not signify new employment generation.

The classification of industry-wise payroll data for August 2022 indicates that mainly two categories: ‘expert services’ (like manpower agencies) and ‘trading-commercial establishments’ constitute 47% of the total member addition during the month.

Both these categories have a proportionately large number of contract workers. Thus, it reinforces that a significantly large segment of the increase in net enrolment comes from the addition of contract workers.

Another factor which contributed towards the increase in net enrolment in recent times is the ease of process brought about by technical progress. Registration is online, free of cost and hassle-free; no requirement of visiting the EPFO office. This has definitely helped new registration. Also, the EPFO has introduced portability of EPF accounts in the sense that even if the employer changes, the enrolment number remains the same. The EPFO data shows that during August 2022, approximately 7.07 lakh net members exited but re-joined by changing their jobs within the establishments covered by EPFO and opting to transfer their funds from their previous PF account to the current account instead of submitting claims for final settlement.

Another significant insight is the gender aspect of the increase in net EPFO enrolment. The enrolment of net female members was 3.63 lakh in August 2022, an increase of 22.60% compared with August 2021 - an encouraging trend, with the potential of raising female labour force participation rate in India.

An increase in monthly net enrolment of EPFO beneficiaries over the last year is encouraging. However, interpreting this entirely in terms of new employment creation might be far-fetched, even misleading. Payroll data is provisional since data generation is a continuous exercise (previous data hence gets updated every month).

From April 2018, the EPFO has been releasing payroll data covering the period from September 2017 onwards. In monthly payroll data, the count of members joining the EPFO for the first time through Aadhaar validated Universal Account Number, existing members exiting from EPFO coverage and those who exited but re-joined as members is taken to arrive at net monthly payroll.

In this scenario, it will be difficult to attribute the net increase in enrolment to new employment creation. Both reorganising within the existing beneficiaries and inclusion of existing contract workers are adding to numbers. The outcome warrants a more nuanced interpretation rather than simplifying that there is a great spurt in employment generation as postulated by the government.

(Mehrotra is Research Fellow, IZA Institute of Labour Economics, Bonn, and Sarkar is Professor, Goa Institute of Management)