What Does Increasing Labour Homogeneity Mean for Indian Manufacturing?

Paul, Bino and Patnaik, Unmesh and Sahu, Santosh Kumar and Awasthi, Mansi (2020): What Does Increasing Labour Homogeneity Mean for Indian Manufacturing?

Abstract

In evaluating the economic system, the share of wage in value-added (labour share) assumes significance. We examine the trend of labour share in Indian manufacturing during 2001-14, by using the pooled plant-level data. In the analysis, the heterogeneities with respect to factor share, factor ratio and magnitude of factors (labour and capital) are gauged, while the trend of elasticity of substitution is measured. With this context, we assess if the labour heterogeneity explains the variation in the total factor productivity, taking the industry as a unit of analysis. Further, the analysis looks into the relationship between labour heterogeneity and productivity. Analysing the microdata on the labour force, we gauge the determinants of wage from the vantage of supply. Cues from this analysis point to the need for social up-gradation of Indian manufacturing in terms of decent employment relations and skill. This change may enable India to move from factor abundant system to a productivity-oriented economy in the milieu of steadfast substitution of labour by capital. The novelty of this paper is in pooling the plant-level data across years, while industry level aggregation is resorted to examine the longitudinal dynamics. Quite important, insights emanating from the firm and industry-based data are juxtaposed with the microdata of labour supply to understand the supply side dimensions of wage, while envisioning the implications for the economy of manufacturing to upgrade to a productivity orientation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Labour heterogeneity, TFP, Manufacturing, India
• Subjects: D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; J - Labor and Demographic Economics > J0 - General > J01 - Labor Economics: General; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General; L - Industrial Organization > L6 - Industry Studies: Manufacturing

References

Aggarwal, Aradhna, and Takahiro Sato. "Firm Dynamics and Productivity Growth in Indian Manufacturing: Evidence from Plant Level Panel Dataset." Research Institute for Economics and Business Administration, Discussion Paper Series DP2011-07, Kobe University (2011).

Ackerberg, Daniel A., Kevin Caves, and Garth Frazer. "Identification properties of recent production function estimators." Econometrica 83.6 (2015), 2411-2451.

Barua, Alokesh, Bishwanath Goldar, and Himani Sharma. The Role of Technological Conditions of Production in Explaining India's Manufacturing Growth, 1998-00 to 2007-08: Some Policy Perspectives. No. 15-04. Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India, 2015.

Das, Ram Upendra. "Productivity in the Era of Trade and Investment Liberalization in India." (2011).

Deb, Arnab K., and Subhash C. Ray. Economic reforms and total factor productivity growth of Indian manufacturing: An inter-state analysis. No. 2013-04. University of Connecticut, Department of Economics, 2013.

Diamond, Peter, Daniel McFadden, and Miguel Rodriguez, “Measurement of the Elasticity of Factor Substitution and Bias of Technical Change," in Melvyn Fuss and Daniel McFadden, eds., Production Economics: A Dual Approach to Theory and Applications, 1978, chapter 5.

Ghosh, Saibal. "Do economic reforms matter for manufacturing productivity? Evidence from the Indian experience." Economic Modelling 31 (2013), 723-733.

Goldar, Bishwanath. "Trade liberalisation and labour demand elasticity in Indian manufacturing." Economic and Political Weekly (2009), 51-57.

Goldar, Bishwanath. "WAGES AND WAGE SHARE IN INDIA DURING THE POST-REFORM PERIOD." Indian Journal of Labour Economics 56.1 (2013).

Goldar, Bishwanath. "Productivity in Indian Manufacturing in the Post-Reform Period: A Review of Studies." Productivity in Indian Manufacturing. Routledge India, 2014. 99-129.

Goldar, Bishwanath, and Suresh Chand Aggarwal. "Trade liberalization and price‐cost margin in Indian industries." The Developing Economies 43.3 (2005), 346-373.

Goldar, Bishwanath and Amit Sadhukhan. Employment and wages in Indian manufacturing: Post-reform performance. International Labour Organisation: Geneva, 2015.

Gupta, Nitin. Impact of Elasticities of Substitution, Technical Change, and Labour Regulations on Labour Welfare in Indian Industries. No. 2012-10. The Australian National University, Australia South Asia Research Centre, 2012.

Hasan, Rana, Devashish Mitra, and Asha Sundaram. "What explains the high capital intensity of Indian manufacturing?." Indian Growth and Development Review 6.2 (2013), 212-241.

Jha, Praveen, and Sakti Golder. Labour market regulation and economic performance: A critical review of arguments and some plausible lessons for India. No. 2008-01. International Labour Office, 2008.

Kannan, K. P., and G. Raveendran. "Growth sans employment: A quarter century of jobless growth in India's organised manufacturing." Economic and Political Weekly (2009), 80-91.

Kapoor, Radhicka. "Technology, Jobs and Inequality." February 2016. Indian Council for Research on International Economic Relations. Working Paper. 24 October 2018.

Kapoor, Radhicka. "Creating jobs in India’s organised manufacturing sector." The Indian Journal of Labour Economics 58.3 (2015), 349-375.

Karabarbounis, Loukas, and Brent Neiman. "The global decline of the labor share." The Quarterly journal of economics 129.1 (2013), 61-103.

Kathuria, Vinish, Rajesh SN Raj, and Kunal Sen. Productivity measurement in Indian manufacturing: A comparison of alternative methods. Institute for Development Policy and Management, 2012.

Kien, Tran Nhuan, and Yoon Heo. "Impacts of trade liberalization on employment in Vietnam: a system generalized method of moments estimation." The Developing Economies47.1 (2009), 81-103.

Levinsohn, James, and Amil Petrin. "Estimating production functions using inputs to control for unobservables." The review of economic studies 70.2 (2003), 317-341.

Mincer, Jacob. "Human capital and economic growth." National Bureau of Economic Research, Working Paper No. 803. (1981).

Mitra, Arup, Chandan Sharma, and Marie-Ange Véganzonès-Varoudakis. "Estimating impact of infrastructure on productivity and efficiency of Indian manufacturing." Applied Economics Letters 19.8 (2012), 779-783.

Muralidharan, T., Bino Paul, and Ashutosh Murti. "Should real wages of workers go up in Indian manufacturing." Economic and Political Weekly 49.30 (2014), 153-162.

Nagaraj, Rayaprolu. "Fall in organised manufacturing employment: A brief note." Economic and Political Weekly (2004), 3387-3390.

OECD. "OECD Economic Surveys India." November 2014. 18 December 2018.

Olley, G. Steven, and Ariel Pakes. The dynamics of productivity in the telecommunications equipment industry. No. w3977. National Bureau of Economic Research, 1992.

Pedroni, Peter. "Purchasing power parity tests in cointegrated panels." Review of Economics and Statistics 83.4 (2001), 727-731.

Piketty, Thomas, Capital in the Twenty-First Century, Belknap Press, 2014.

Robinson, Peter M. "Root-N-consistent semiparametric regression." Econometrica: Journal of the Econometric Society (1988), 931-954.

Sahu, Santosh Kumar, and Himani Sharma. "Productivity, Energy Intensity and Output: A Unit Level Analysis of the Indian Manufacturing Sector." Journal of Quantitative Economics 14.2 (2016), 283-300.

Satpathy, Lopamudra D., Bani Chatterjee, and Jitendra Mahakud. "Firm Characteristics and Total Factor Productivity: Evidence from Indian Manufacturing Firms." Margin: The Journal of Applied Economic Research 11.1 (2017), 77-98.

Sivadasan, Jagadeesh. "Barriers to competition and productivity: Evidence from India." The BE Journal of Economic Analysis & Policy 9.1 (2009).

Topalova, Petia, and Amit Khandelwal. "Trade liberalization and firm productivity: The case of India." Review of economics and statistics 93.3 (2011), 995-1009.

Virmani, Arvind, and Danish A. Hashim. "Factor employment, sources and sustainability of output growth: Analysis of Indian manufacturing." Ministry of Finance, Government of India, Working Paper 3 (2009), 21.

Wooldridge, Jeffrey M. "On estimating firm-level production functions using proxy variables to control for unobservables." Economics Letters 104.3 (2009), 112-114.