Skip to main content

Advertisement

SpringerLink
Log in

The productivity-wage and productivity-employment nexus: a panel data analysis of Indian manufacturing

  • Published:
Empirical Economics Aims and scope Submit manuscript

Abstract

This article investigates the long-run relationship between labour productivity and employment, and between labour productivity and real wages in the case of the Indian manufacturing sector. The panel data set consists of 17 two-digit manufacturing industries for the period 1973–1974 to 1999–2001. We find that productivity-wages and productivity-employment are panel cointegrated for all industries. We find that both employment and real wages exert a positive effect on labour productivity. We argue that flexible labour market has a significant influence on manufacturing productivity, employment and real wages in the case of Indian manufacturing.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Aggarwal AK, Kumar G (1991) Indian manufacturing industry: Verdoorn’s law revisited. Indian Econ J 39(2): 61–81

    Google Scholar 

  • Ahluwalia IJ (1991) Productivity and growth in Indian manufacturing. Oxford University Press, New Delhi

    Google Scholar 

  • Amato JD, Swanson NR (2001) The real-time predictive content of money for output. J Monetary Econ 48: 3–24

    Article  Google Scholar 

  • Balakrishnan P, Pushpangadan K (1994) Total factor productivity growth in manufacturing industry: a fresh look. Econ Polit Weekly (July) 30: 2028–2035

    Google Scholar 

  • Balakrishnan P, Babu MS (2003) Growth and distribution in Indian industry in the nineties. Econ Polit Weekly 38: 3679–3682

    Google Scholar 

  • Baltagi BH (2005) Econometric analysis of panel data, 3rd edn. Wiley, New York

    Google Scholar 

  • Banga, R (2005) Impact of Liberalization on wages and employment in Indian manufacturing industries. ICRIER Working Paper No 153, pp 1–30

  • Bell C, Rousseall PL (2001) Post-independence India: a case of finance-led industrialization. J Dev Econ 65: 153–175

    Article  Google Scholar 

  • Bidhe S, Kalirajan KP (2004) Impact of trade liberalisation on employment in Indian manufacturing: evidence from the organised sector. J Soc Econ Dev (forthcoming issue)

  • Bhalotra SR (1998) The puzzle of jobless growth in Indian manufacturing. Oxf Bull Econ Stat 60(1): 5–31

    Article  Google Scholar 

  • Canning D, Pedroni P (2008) Infrastructure, long-run economic growth and causality tests for cointegrated panels. Manchester School 76: 504–527

    Article  Google Scholar 

  • Diebold FX, Mariano RS (1995) Comparing predictive accuracy. J Bus Econ Stat 13: 253–263

    Article  Google Scholar 

  • Economic Survey (2004–2005) Ministry of Finance. Economic Division, Government of India

  • Ender W (2004) Applied econometric time series, 2nd edn. John Wiley and Sons, New York

    Google Scholar 

  • Gangopadhyay S, Wadhwa W (1998) Economic reforms and labour. Econ Polit Weekly 33(22): L40–L48

    Google Scholar 

  • Goldar B (1986) Productivity growth in Indian industry. Allied Publishers, New Delhi

    Google Scholar 

  • Goldar B (2000) Employment growth in organized manufacturing sector in India. Econ Polit Weekly 35(14, April 1): 1191–1195

    Google Scholar 

  • Goldar B (2004) Productivity trends in Indian manufacturing in the pre- and post-reform period. ICRIER Working Paper No 137, pp 1–34

  • Hasan R (2002) The impact of imported and domestic technologies on the productivity of firms: panel data evidence from Indian manufacturing firms. J Dev Econ 69: 23–49

    Article  Google Scholar 

  • Hasan R, Raturi M (2003) Does investing in technology affect exports? Evidence from Indian firms?. Rev Dev Econ 7(2): 279–293

    Article  Google Scholar 

  • Im KS, Pesaran MH, Shin Y (1997) Testing for unit roots in heterogeneous panels, Manuscript. Department of Applied Economics, University of Cambridge

  • Im KS, Pesaran MH, Shin Y (2003) Testing for unit roots in heterogeneous panels. J Econ 115: 53–74

    Google Scholar 

  • Krishna P, Mitra D (1998) Trade liberalisation, market discipline and productivity growth: new evidence from India. J Dev Econ 56: 447–462

    Article  Google Scholar 

  • Kumar S (2002) Regional variations in labour productivity growth in Indian manufacturing sector. Anvesak 32(2): 111–136

    Google Scholar 

  • Lall SV, Shalizi Z, Deichmann U (2004) Agglomeration economies and productivity in Indian industry. J Dev Econ 73: 643–673

    Article  Google Scholar 

  • Leibenstein H (1957) The theory of unemployment in backward economies. J Polit Econ LXV(2): 91–103

    Article  Google Scholar 

  • Mitra D, Ural BP (2008) Indian manufacturing: a slow sector in a rapidly growing economy. J Int Trade Econ Dev 7(4): 525–559

    Article  Google Scholar 

  • Pedroni P (1999) Critical values for cointegration tests in heterogeneous panel with multiple regressors. Oxf Bull Econ Stat 61: 653–670

    Article  Google Scholar 

  • Pedroni P (2000) Fully modified OLS for heterogeneous cointegrated panels. Adv Econom 15: 93–130

    Article  Google Scholar 

  • Pedroni P (2001) Purchasing power parity tests in cointegrated panels. Rev Econ Stat 83: 727–731

    Article  Google Scholar 

  • Perron P (1997) Further evidence of breaking trend functions in macroeconomic variables. J Econom 80: 355–385

    Article  Google Scholar 

  • Pesaran MH (2004) General diagnostic tests for cross section dependence in panels. Cambridge Working Papers in Econ 0435. Faculty of Economics, University of Cambridge

  • Raut LK (1995) R&D spillover and productivity growth: evidence from Indian private firms. J Dev Econ 48: 1–23

    Article  Google Scholar 

  • Rao MJ (1996) Manufacturing productivity growth: method and measurement. Econ Polit Weekly 2: 2927–2936

    Google Scholar 

  • Tendulkar SD (2003) Employment growth in factory manufacturing sector during pre and post-reform periods. Paper presented at the NBER-NCAER Annual Conference on Indian Economy, New Delhi

    Google Scholar 

  • Thomas JJ (2002) A review of Indian manufacturing. In: Parikh KS, Radhakrishna R (eds) India Development Report, Indira Gandhi Institute of Development Research. Oxford University Press, New Delhi

    Google Scholar 

  • Trivedi P, Prakash A, Sinate D (2000) Productivity in major manufacturing industries in India: 1973–74 to 1997–98. Development Research Group Study 20, Department of Economic Analysis and Policy, Reserve Bank of India, Mumbai

    Google Scholar 

  • TSL (2003) Reforms and productivity trends in Indian manufacturing sector. Department of Economics and Statistics, Tata Service Limited, Mumbai

  • Unel B (2003) Productivity trends in India’s manufacturing sectors in the last two decades. IMF Working Paper WP/03/22

  • Upender M (1996) Elasticity of labor productivity in Indian manufacturing. Econ Polit Weekly 31(21): M7–M10

    Google Scholar 

  • Vedder RK, Gallaway LE (1956) Productivity and wages in the American economy: a tale of two centuries. Econ New Ser 35(138): 162–170

    Google Scholar 

  • World Bank: (2004) World development indicators. World Bank, Washington, DC

    Google Scholar 

  • World Trade Indicators: (2003) India’s manufacturing sector: policy framework. Academic Foundation, New Delhi

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Monash University, Melbourne, Australia

    Mita Bhattacharya

  2. Deakin University, Melbourne, Australia

    Paresh Kumar Narayan

  3. University of Essen-Duishburg, Essen-Duishburg, Germany

    Stephan Popp

  4. Indian Institute of Technology in Hyderabad, Hyderabad, India

    Badri Narayan Rath

Authors
  1. Mita Bhattacharya
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Paresh Kumar Narayan
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Stephan Popp
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Badri Narayan Rath
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Paresh Kumar Narayan.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Bhattacharya, M., Narayan, P.K., Popp, S. et al. The productivity-wage and productivity-employment nexus: a panel data analysis of Indian manufacturing. Empir Econ 40, 285–303 (2011). https://doi.org/10.1007/s00181-010-0362-y

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00181-010-0362-y

Keywords

JEL Classification

Search

Navigation