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Trends in Employment, Productivity, Real Wages and Labour Standards in Indian Manufacturing in Recent Years

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Abstract

Several surveys of India’s micro, small and medium enterprises (MSMEs) undertaken during 2020 and 2021 have revealed that these enterprises which account for about 90% or more of manufacturing employment were severely affected by the COVID-19 pandemic. In addition, there are data to indicate that even the formal manufacturing enterprises in India were adversely impacted by the COVID-19 pandemic. Yet, using Periodic Labour Force Survey (PLFS) data, we estimate that manufacturing employment grew by about 5 per cent in 2020–21 and about 8 per cent in 2021–22, reversing the previous downward trend. However, these increases in manufacturing employment based on the usual principal and subsidiary status (UPSS) concept do not correctly measure the growth in labour input. According to our estimates, labour input in manufacturing fell by about 6 per cent in FY2021 (financial year 2020–21) and rose by about 13 per cent in FY2022. Labour productivity in manufacturing rose sharply in FY2021 and fell slightly in FY2022. Analysing data on wages, tenure of job contracts, and provision of social security to workers, we find that during the two years affected by the COVID-19 pandemic, the large increases in manufacturing employment were not accompanied by any significant lowering of real wages, nor with a deterioration in labour standards. Instead, the evidence points towards a rapid formalisation of informal industrial enterprises, significant increases in the real product wages of regular and casual workers, and an improvement in labour standards for hired workers.

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Fig. 1

Source: Authors’ computations based on PLFS data

Fig. 2

Source: Authors’ computations based on IIP

Fig. 3

Source and note: Authors’ computations. The computations for 1981–82 to 2018–19 are based on the India KLEMS database. The calculations for 2019–20, 2020–21 and 2021–22 are based on National Accounts Statistics and PLFS data (methodology explained in the text). Annual growth rate or average annual growth rates are shown

Fig. 4

Source: Authors’ computations based on National Accounts Statistics

Fig. 5

Source: Authors’ computations based on National Accounts Statistics and PLFS data

Fig. 6

Source: Authors’ computations based on PLFS unit-level data. Gross earnings of self-employed workers for 2018–19 and 2019–20 have been obtained by interpolation

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Notes

  1. This survey was conducted under the All-India Quarterly Establishment-based Employment Survey of the Ministry of Labour and Employment, Government of India.

  2. National Statistical Office, Ministry of Statistics and Programme Implementation, Government of India.

  3. In the interest of transparency, some details of our computational procedure are provided. We have used the population estimates given in the recently released population projection made by the technical group on population projections [Population Projections for India and states 2011–2036: Report of the Technical Group on Population Projections, July 2020, National Commission on Population, Ministry of Health & Family Welfare, Government of India]. We have used the same definition of manufacturing as is used by the NSSO in EUS (Employment-Unemployment Survey) (see discussion later in Sect. 3 on this point). We have first estimated (a) total rural employment and total urban employment, then (b) split rural and urban aggregate employment into industry divisions separately, (c) derived manufacturing employment in rural areas and that in urban areas, and (d) then added rural manufacturing employment and urban manufacturing employment to obtain total manufacturing employment in the country.

  4. While the dates of the survey are not clearly mentioned in the summary of the report that could be accessed, it seems the survey was undertaken sometime during April-June 2020.

  5. The frame used for the sample survey under QES had about 563 thousand establishments out of which about 181 thousand belonged to manufacturing. The frame used was the Directory of Establishments based on the Sixth Economic Census. QES covers only units with 10 or more workers. Thus, the coverage is confined the organized or formal sector. Also, it should be noted that new units set up after the Sixth Economic Census was conducted in 2013–14 are not included in the survey. This fact that newly set up unit are not covered is not a disadvantage in assessing the impact of COVID-19 on enterprises based on survey findings of QES.

  6. The implication is that the job losses in manufacturing establishments in the initial part of FY2021 due to COVID-19 were made up in later months of the financial year. These estimates are for a fixed set of manufacturing establishments. If one adds the new establishments that were set up between July 2020 and March 2021 or the establishments which employed less than ten workers in March 2020 and raised their employment to beyond 10 workers, the actual employment growth will be more than the growth indicated by employment data for the fixed set of establishments. Thus, the data on employment in manufacturing establishments in March and July 2020 and April 2021 provided in the first round of QES appears to be consistent with the estimates of employment growth in manufacturing made by the present authors using PLFS data.

  7. It is interesting to note that the estimates provided in the First Report of the QES (Table 2.17) indicate that the reduction in the number of workers in formal manufacturing enterprises between end March 2020 and July 1, 2000, was about 11 per cent among male workers and about 13 per cent among female workers. This pattern needs to be confirmed with the findings of other surveys.

  8. The Report is available at the Reserve Bank of India website. https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/INDIAPRODUCTIVITYREPORT26D0A735C8B4411FBD4513A11532FA51.PDF.

  9. India KLEMS database is available at the Reserve Bank of India website. https://www.rbi.org.in/Scripts/KLEMS.aspx.

  10. A fall in real GVA in manufacturing occurred after 20 years. For a discussion on the factors underlying the fall in real GVA in manufacturing in 2019, see Goldar (2022).

  11. The GVA data for 2019–20, 2020–21 and 2021–22 have been taken from National Accounts Statistics, 2023, National Statistical Office, Ministry of Statistics and Programme Implementation, Government of India.

  12. For this purpose, estimates of real GVA in cotton ginning and custom tailoring for the years 2017–18 to 2021–22 have been made.

  13. https://en.wikipedia.org/wiki/COVID-19_lockdown_in_India#:~:text=April%205%E2%80%9315%20June%202021%20(Lockdown%20Phase)&text=On%205%20April%202021%20everything,in%20COVID%2D19%20second%20wave.

  14. In the Annual Report, Period Labour Force Survey, July 2020- June 2021, the following is stated (Chapter 1, p. 1): “The fieldwork of PLFS was suspended first time from 18.03.2020 due to COVID-19 pandemic, and was resumed in June 2020 with the pending samples for this period. This, therefore, had a spill-over effect in completion of field work allotted for the survey period July 2020 to June 2021. Subsequently, there was another spill-over effect due to the 2nd wave of Covid-19 when the field work of PLFS was again suspended in April 2021 in most parts of the country. The field work was gradually resumed in the first week of June 2021 with Covid-19 related restrictions.” In the Annual Report, Period Labour Force Survey, July 2021- June 2022, the following is stated (Chapter 1, p. 1): “Due to the 2nd wave of COVID-19 pandemic related restrictions, the field work of PLFS was suspended for the second time in April 2021 in most parts of the country. The field work was gradually resumed in the first week of June 2021.”.

  15. The growth rates in manufacturing employment for FY2021 is about four per cent, and that for FY2022 is about seven per cent. The growth rate in labour input is minus six per cent for FY2021 and about 13 per cent in FY2022. This reflects the changes in person-days of work per week.

  16. The months of July to June next year are taken, as in PLFS, to maintain comparability with other studies based on PLFS.

  17. This is based on an Interim Report of a study titled “Impact Assessment Study of the Labour Reforms undertaken by the States,” prepared by the V.V. Giri National Labour Institute, NOIDA, and the Indian Institute of Public Administration, New Delhi, in 2021. Information on the amendments is available in Appendix III and Tables 1.3 and 2.1 in the Interim Report.

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Acknowledgements

We have immensely benefitted from the comments and suggestions of two anonymous Reviewers on the previous version of the paper.

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  1. Suresh Chand Aggarwal

    Present address: Institute for Human Development, New Delhi, India

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  1. Institute of Economic Growth, Delhi, India

    Bishwanath Goldar

  2. Department of Business Economics, Delhi University, New Delhi, India

    Suresh Chand Aggarwal

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Goldar, B., Aggarwal, S.C. Trends in Employment, Productivity, Real Wages and Labour Standards in Indian Manufacturing in Recent Years. Ind. J. Labour Econ. 66, 561–581 (2023). https://doi.org/10.1007/s41027-023-00442-9

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