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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?

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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.

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