Journal of Regional Development and Planning, Vol. 2, No.2, 2013
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EMPLOYMENT INTENSITY OF SECONDARY SECTOR IN INDIA: TRENDS,
PATTERNS AND DETERMINANTS
Falguni Pattanaik1 and Narayan Chandra Nayak2
Expansion of the secondary sector in India is marked by the inability to achieve prolonged spells
of its rapid growth, though it has shown relatively stable employment elasticity. The analysis of
the nature of employment growth with output growth in the sub-sectors indicates that while
historically India’s secondary sector employment was driven by manufacturing sector, in recent
years, it is the phenomenal rise in construction sector that is contributing considerably towards
employment creation. Negative employment elasticity in this sub-sector may, however, indicate
very low labour productivity leading to poor quality of employment. There has been destruction of
productive jobs in organised manufacturing as the informal employment is on the rise. The study
identifies labour productivity, GDP growth, share of services to GDP, investment and foreign
trade as the macroeconomic factors determining employment intensity of the secondary sector in
India.
INTRODUCTION
In recent decades, the economies of the world have witnessed sweeping changes on several
macroeconomic indicators, thanks to globalisation and liberalisation processes. It is, however,
common place that along with certain opportunities, globalisation has brought in immense
challenges. This observation is particularly relevant with regard to employment. It is established
that the era of globalisation is associated with far-reaching changes in the structure of
employment, including pressures for increasing flexibility, scenarios of ‘jobless growth’,
unprecedented rise in informalisation and casualisation, and declining opportunities for the lessskilled (Heintz, 2006). While possibility of a strong output-employment linkage is considered as
an empirical regularity in some advanced countries, there are, however, evidences of growth
weakening such links in developing ones (Jha, 2003; Bhattacharya and Sakhtivel, 2004; Heintz,
2006).
India’s economic performance during the last two decades, as Anklesaria Aiyar (2011) puts it, has
been characterised by “the elephant that became a tiger”. It has moved from “Hindu Growth Rate”
to one of the fastest growing economies of the world. Since labour market performance is
necessarily affected by gross domestic product (GDP) growth, employment growth in the Indian
economy should have risen commensurately during this period. Contrarily, employment growth
rate in the Indian economy has been modest and has lagged behind labour force growth rate. The
development on employment front tends to indicate that the high-growth trajectory does not seem
to have reaped benefits according to targets.
Historically, India has had the convention of experiencing failures on employment fronts despite
ups and downs in income growth. In the early period, low GDP growth rates were not employment
1
2
Assistant Professor, Department of Humanities and Social Sciences, KIIT University,
Bhubaneswar, Odisha, India Email: falguni@hss.iitkgp.ernet.in
Associate Professor, Department of Humanities and Social Sciences, Indian Institute of
Technology Kharagpur, West Bengal, India Email: ncnayak@hss.iitkgp.ernet.in
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intensive and the basic sources of growth were the sectors with capital-intensive production
techniques. The 1980s was characterised by poor and unstable economic performance. Modest
GDP growth rates were associated with inadequate employment content, notwithstanding
increasing number of new entrants to the labour market. Adoption of economic reform
programmes in the early 1990s brought about changes in the structure of GDP and employment,
which was, however, accompanied by a situation of ‘jobless growth’. In this context, there is a
need to answer following important questions while examining the issue of employment intensity
of growth: What is the pattern of economic growth that India has been experiencing? What are the
sectors and sub-sectors in which output growth generates more jobs? Do these sectors get
sufficient priority to meet the employment objectives?
In today’s modern economies, among the three broad sectors, industrial sector performs many
important roles. First, it plays an active role in market integration in the overall production system.
Second, creation of employment, value added and income is increasingly related to the good
performance of the industries (Maroto-Sanchez, 2010). In India, the industrial sector has evolved
continually over the past sixty years, modifying the structure of employment and the composition
of value added. Currently, industrial sector accounts for about 28 percent of the value added.
Despite its growing weight, the share of the working-age population employed in industries
remains relatively lower (Kannan and Raveendran, 2009). The sluggish growth and employment
performance of the industrial sector can be largely attributed to growing globalisation of services
and rapid technological change, and differences in policies and institutions in the country (Unni &
Raveendran, 2007; Joshi, 2004).
Given the above backdrop, the present study attempts to develop a set of stylised facts
characterising the industrial sector in India with respect to economic growth and employment, and
their inter-linkages. Accordingly, the paper is divided into six sections. Section two makes a brief
historical account of the development strategies India has adopted over time in connection with
employment generation. Section three outlines concept, database and methodology of the study.
Section four presents the trends in growth and employment, share of employment, quality of
employment and regional characteristics of employment in the secondary sector of the economy.
Section five identifies the determinants of employment intensity of growth of the secondary
sector in India and discusses the results. Section six offers implications of the findings and
concludes the study.
INDIA’S EMPLOYMENT STRATEGY: A HISTORICAL ACCOUNT
Evidently, in India, several alternative development strategies have been in vogue in about six
decades of economic planning. However, the country seems to have failed to link growth to
employment on several counts. Interestingly, in the initial years of development planning,
employment was not expected to emerge as a serious problem; yet there were efforts to see that
sufficient employment was generated in the development process to employ the growing labour
force productively (Papola, 1992). A reasonably high rate of economic growth, backed by the
expansion of labour-intensive sectors like small-scale industries, was expected to achieve this
goal. During this period, the rate and structure of growth rather than technology were considered
as the key instruments of employment generation. Unemployment was estimated to be relatively
low, as was the growth rate of labour force, and a targeted economic growth rate of 5 percent, with
Journal of Regional Development and Planning, Vol. 2, No.2, 2013
159
an emphasis on labour-intensive consumer goods sectors, was expected to generate adequate job
opportunities (Papola, 1992).
Achievements relating to growth and employment during the 1950s and the 1960s, however, fell
far short of expectations because GDP grew at an average annual rate of around 3.5 percent only.
Employment growth averaged a meager 2 percent, whereas the labour force grew at a rate of 2.5
percent. As a result, the number of unemployed, estimated as 5 million in 1956, rose to 10 million
by 1973-74 (Shetty, 1978).
Recognising the urgent need to address the problems of growing unemployment and persistent
poverty among almost half the population, the fifth five-year plan (1974-79) envisaged
reorientation of development strategy towards employment-oriented growth and the introduction
of special anti-poverty and employment programmes. While this approach continued for about a
decade, the magnitude of the problem seemed to have magnified during this period. The seventh
plan for the first time, thus, considered creation of productive employment as an explicit goal and
accordingly attempted to place employment at the core of the development strategy. Despite this
underlying effort, Indian economy experienced a sharp deceleration in the employment growth in
the 1980s with a mild acceleration in the GDP growth (Sundaram, 2001a and 2001b; Bhattacharya
and Sakhivel, 2004).
With the onset of economic reforms in the early 1990s, Planning Commission of India, having
experienced serious failure on employment front in the preceding decades, considered
employment generation as one of India’s key targets and accordingly, set an objective of
‘employment for all’ by 2002 (Planning Commission, 1992). This target was integrated into the
plan strategy through overall and sectoral priorities.
India witnessed reasonably higher growth rates of GDP (around 6 percent) during the 1990s.
Ironically, the country failed miserably in transmitting the successes of growth to employment as
employment growth rate remained as low as 1.1 percent only. A much lower growth during the
earlier decades had been accompanied by about 2 percent growth in employment (Bhattacharya
and Sakhivel, 2004; Sundaram, 2001a and 2001b). In the wake of growth failing to create
employment, a renewed urgency to focus on employment appeared to have set in by the end of the
1990s, presumably with the realisation that faster economic growth by itself is not sufficient to
tackle the problem. Two committees (a Task Force in 1999 and a Special Group in 2001) were
appointed by the Planning Commission to examine the trends in employment generation and to
suggest a strategy for the creation of employment opportunities for all within a specified time.
Following the recommendations of the Special Group and the Task Force (Planning Commission,
2002), the tenth plan introduced a number of special programmes relating to different sectors
including agriculture and related activities, small and medium enterprises, rural non-farm sector
and social sector. Policy changes were brought in to stimulate the promotion of labour-intensive
sectors including construction, tourism, information and communication technology (ICT) and
financial services. It was argued that this reorientation would not necessarily involve heavy
additional investment but mostly be a reallocation of funds and choice of appropriate technologies.
In view of the growth failing to benefit the poor, the 11th plan adopted a strategy of ‘inclusive
growth’, wherein employment creation occupied a pivotal place (Planning Commission, 2006).
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Despite all these initiatives, it is somewhat puzzling for a labour-rich country like India where
growth has not been job-intensive (Purfield, 2006). To add woes to the worries, there are
evidences of inter-sectoral and inter-state inequalities in the employment content of economic
growth. Especially in the post-reforms period, employment elasticity has severely declined at the
national level as well as across states and sectors (Bhattacharya and Sakhivel, 2004). The process
of liberalisation and economic reforms is partly to receive the blame (Goldar, 2000; Nagaraj,
2000; Bhalotra, 1998; Kundu, 1997; Bhattacharya and Mitra, 1993; Mundle, 1992; Deshpande,
1992 ). Increased competition in the post-liberalisation era has the tendency to induce firms to
reduce their workforce, while at the same time, increased access to foreign technology and capital
goods, both associated with the reforms, tends to increase the capital-intensity of production
(Ghose, 1994). There are evidences that public sector employment has not grown in the 1990s, but
a healthy growth rate in employment has been maintained in the registered private sector (Goldar,
2000). All these purport to question the ability of the country to adjust to structural change and to
foster a more dynamic and competitive environment that encourages enhanced productivity while
guaranteeing creation of new employment (Papola, 2008).
CONCEPTS, DATA BASE AND METHODOLOGY
Defining Employment
In the present study, employment is measured as the number of persons employed in India
according to usual activity status approach (UPSS). A person is considered employed under usual
status approach if s/he had pursed gainful economic activity for a relatively longer time period
immediately preceding one year prior to the date of NSS survey. This is known as ‘Usual Principal
Activity Status’. On the contrary, if a person had spent relatively shorter time span immediately
preceding one year prior to the date of survey, s/he is accounted under ‘Usual Subsidiary Activity
Status’. Both the statuses together constitute UPSS (NSSO, 2009-10).
Concept of Employment Intensity of Growth
In order to find out the employment content of economic growth, a summary indicator is needed,
which should measure the degree of employment growth associated with a given output growth.
This indicator is called the employment intensity of growth, which is defined as the elasticity of
employment with respect to output growth. Quantitative estimates of employment elasticity are
based on the assumption that employment is primarily a function of output. Elasticity of
employment is expressed by a log-linear equation that links employment to GDP:
ln( E ) = α + β ln(Y ) + u
(1)
where ln denotes the natural logarithm of the relevant variable, and the regression coefficient is
employment elasticity with respect to output. Employment elasticity, which measures the
‘employment intensity’ of economic growth, can provide important information about the labour
market and the country’s overall macroeconomic performance. There is a fundamental linkage
between employment elasticity and labour productivity (Kapsos, 2005). Mathematically it can be
represented as:
Yi = Ei * Pi
(2)
where Yi , Ei and Pi are output, employment and labour productivity (output per worker)
respectively.
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∆Yi = ∆Ei + ∆Pi
ε = 1− p
Where
(3)
ε=
∆E
∆P
and p =
∆Y
∆Y
(4)
Equation 3 shows the elasticity of employment with respect to GDP and it is equal to 1 minus the
elasticity of labour productivity. Examining changes in output together with employment elasticity
gives an idea as to whether growth in a country occurs hand in hand with gains in employment and
labour productivity.
Database
Data on employment and output were collected for secondary sector of the Indian economy,
comprising four broad sub-sectors. The taxonomy of Indian Economy is as follows:
Fig 1
The Taxonomy of the Indian Economy
Primary Sector
Secondary Sector
Tertiary Sector
Agriculture,
Wholesale and Retail Trade, Hotels and
Mining & Quarrying
Forestry, Hunting Manufacturing
Restaurants
and Fishing
Public Utilities
Transport, Storage, and Communication
Construction
Finance, Insurance, and Real Estate
Community, Social and Personal Services
Source: NSSO Industry Classification (2009/10)
The present study attempts to examine how employment and output in the Indian industry sector
has evolved over time. For this purpose, annual data are in use and the study considers the period
from 1960-61 to 2009-10. The study analyses three phases of the post-independent Indian
economy, which are easily distinguishable namely (a) 1960/61-1983/84: low GDP growth rates
associated with capital intensive production techniques, (b) 1983/84-1993/94: modest GDP growth
rates associated with increasing number of new entrants to the labour market, and (c) 1993/942009/10: adoption of economic reforms programmes leading to change in the structure of GDP
and employment. Data on employment were collected from the 10-sector database of the
Groningen Growth and Development Centre (GGDC), University of Groningen, The Netherlands
(Timmer, and de Vries, 2007). Data on employment and output were collected by the broad sector
(secondary) and its four sub-sectors. Data on GDP and investment were collected from the
Central Statistical Organisation (CSO) considering 2004/05 as the base year. Inflation, as a proxy
for price uncertainty is taken from the statistical handbook of Reserve Bank of India.
OUTPUT AND EMPLOYMENT GROWTH OF SECONDARY SECTOR IN INDIA
Secondary sector (mining & quarrying, manufacturing, public utilities and construction) has been
a key sector in raising productivity and generating employment in the country. The pace of
expansion of this sector in India is, however, marked by our inability to achieve prolonged spells
of rapid growth. Apart from year on year fluctuations in growth, there are differences in trends in
different phases.
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Considering the entire study period since the 1960s, it is found that the output growth of the
secondary sector has been about 5.77 percent, while the employment growth has been about 3.47
percent (Table 1). The output growth rate of the secondary sector increased from 4.84 percent
during the period 1961/62-1983/84 to 5.36 percent in 1983/84-1993/94 and then to 7.37 percent in
1993/94-2009/10. Consequently, employment growth rate in the secondary sector increased from
2.80 to a high of 3.36 and then to 4.50 percent in the corresponding periods.
Table 1
Output and Employment Growth of the Secondary Sector
Growth of
Growth of
Year
Employment
GDP
2.80
4.84
1961/62-1983/84
3.36
5.36
1983/84-1993/94
4.50
7.37
1993/94-2009/10
3.47
5.77
1961/62-2009/10
Source: Estimated from the data obtained from NSSO and CSO
Table 2
Output Growth, Employment Growth of the Sub-Sectors of Secondary Sector
Growth of Employment
Growth of GDP
Mining & Manufa
Constru Mining & Manufact Utiliti Constr
Year
Quarrying cturing Utilities ction
Quarrying uring
es
uction
2.89
2.56
5.08
3.92
5.13
5.03
8.87
4.03
1961/62-83/84
5.84
2.46
6.19
6.62
6.25
4.99
8.71
4.92
1983/84-93/94
1.56
2.52
-0.16
9.20
4.78
7.64
6.19
8.24
1993/94-09/10
3.06
2.53
3.60
6.20
5.25
5.87
7.96
5.59
1961/62-09/10
Source: Estimated from the data obtained from NSSO and CSO
Turning to sub-sectors, considering the period since the 1960s, it is found that in mining &
quarrying, manufacturing, public utilities and construction, the output growth rates were 5.25,
5.87, 7.96 and 5.59 percent respectively, whereas their employment growth rates were 3.06, 2.53,
3.60 and 6.26 percent respectively (Table 2). There has, however, been great deal of fluctuations
in output and employment growth among the sub-sectors according to different time periods.
Among the sub-sectors, output growth rates of manufacturing were 5.03, 4.99 and 7.64 percent,
whereas the employment growth rates were 2.56, 2.46 and 2.52 percent respectively in the subperiods 1961/62-1983/84, 1983/84-1993/94 and 1993/94-2009/10. For public utilities comprising
electricity, gas and water supply, the output growth rates were 8.87, 8.71 and 6.19 percent and
employment growth rates were 5.08, 6.19 and -0.16 percent respectively in the above-said subperiods. Construction registered output growth rates of 4.03, 4.92 and 8.24 percent and
employment growth rates 3.92, 6.62 and 9.02 percent respectively. Turning to mining &
quarrying, the output growth rates were 5.13, 6.25 and 4.78 percent and employment growth rates
were 2.89, 5.84 and 1.56 percent respectively in the said periods.
Employment elasticity of secondary sector, however, does not seem to have displayed much
variation over the period (0.58 during 1961/62-1983/84 as compared to 0.63 during 1983/841993/94 and 0.61 in 1993/94-2009/10). Employment elasticity has been moving slowly from one
period to another and the overall employment elasticity during the period 1960-2004 has been
0.60. Considering the sub-sectors, the elasticity values during 1961/62-2009/10 have been 1.11 for
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construction followed by 0.58 for mining & quarrying, 0.43 for manufacturing and 0.45 for public
utilities. There has been a significant improvement in the elasticity values in construction during
1983/84-2009/10 and has since then remained above 1. In public utilities, the last phase has
witnessed negative employment elasticity (table 3).
Table 3
Employment Elasticity of Secondary Sector and Its Sub-Sectors
Employment Elasticity
Year
1961/62-1983/84
1983/84-1993/94
1993/94-2009/10
1961/62-2009/10
Mining &
Quarrying
0.56
0.93
0.33
0.58
Manufacturing
Utilities
Construction
0.51
0.49
0.33
0.43
0.57
0.71
-0.03
0.45
0.97
1.34
1.12
1.11
Secondary
Sector
0.58
0.63
0.61
0.60
Source: Estimated from the data obtained from NSSO and CSO
An elasticity greater than one for the construction sector may indicate that although employment
has gone up faster than GDP in this sector, labour productivity in this sector must have gone
down. It may not, however, indicate deterioration in the living standards of those engaged in
construction. It may be noted here that if the people who have found work in construction
activities are more productive than they were in their previous line of work – say, agriculture –
then they may have been better off than they were before. Their productivity might have gone up,
despite the fact that average labour productivity in construction in particular has gone down (ILO,
2011). This argument may hold true for India. This is because those engaged in construction are
the ones who earlier might have been engaged in low productive agriculture or other rural nonfarm activities. While such a possibility may imply improvement in relative economic welfare,
rise in labour productivity in this sector may be desired in the long run.
Negative employment elasticity in public utilities may, on the contrary, imply that employment in
this sector has contracted with the rise in its output. It may be the capital-intensity of the public
utilities that squeezes job opportunities in this sector.
Table 4
Share of Secondary Sector and Its Sub-Sectors Employment to the Total Employment
Mining &
Manufacturing
Utilities
Quarrying
0.51
9.59
0.15
1960/61
0.61
10.66
0.28
1983/84
0.69
10.63
0.40
1993/94
0.64
11.50
0.28
2009/10
Source: Estimated from the data obtained from NSSO and CSO
Year
Construction
1.49
2.24
3.24
9.60
Secondary
Sector
11.74
13.78
14.96
22.02
Employment and Output Share of the Secondary Sector
The share of secondary sector both in employment and output of the country is not much striking.
In a span of nearly five decades, the share of the secondary sector’s employment to total
employment has just improved from about 11.74 percent in 1960/61 to nearly 22.02 percent in
2009/10, while its output share has increased from 20.09 to 28.08 percent (Table 4 and 5). The
changes in the share of sub-sectors to the total of employment and output are sluggish over the
years. Added to the above, India’s secondary sector is confronted with increasing casualisation of
employment, hence raising apprehensions regarding the nature, quality and heterogeneity of this
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sector. Some glimpses of heterogeneity within secondary sector can be traced from an
investigation of the sub-sectoral dynamics.
Table 5
Share of Secondary Sector and Its Sub-Sectors Output to the Total Output
Mining &
Manufacturing
Utilities
Quarrying
2.16
11.00
0.52
1960-61
2.92
14.65
1.58
1983-84
3.26
14.59
2.23
1993-94
2.31
15.88
1.97
2009-10
Source: Estimated from the data obtained from NSSO and CSO
Year
Construction
6.41
6.71
6.64
7.92
Secondary
Sector
20.09
25.86
26.73
28.08
Among the major four industry divisions of the secondary sector, manufacturing accounted for the
largest proportion of output (54.77 percent) in 1960/61, which increased marginally to 56.53
percent in 2009/10. In employment share, manufacurung’s share alone was 81.70 percent in
1960/61, which decreased to 52.23 percent, though it still accounts for the largest share in 2009/10
(Table 6).
Table 6
Distribution of Secondary Sector Employment and Output across Its Sub-Sectors
Year
Distribution of Employment
Distribution of Output
Mining & Manufa
Constru Mining & Manufact
Construc
Utilities
Utilities
Quarrying cturing
ction Quarrying uring
tion
4.38
81.70
1.24
12.68
10.75
54.77
2.58
31.91
1960/61
4.43
77.36
2.03
16.26
11.29
56.66
6.10
25.94
1983/84
4.61
71.06
2.67
21.66
12.19
54.60
8.36
24.85
1993/94
2.91
52.23
1.27
43.60
8.24
56.53
7.02
28.20
2009/10
Source: Estimated from the data obtained from NSSO and CSO
Construction, whose contribution to the total secondary output was the second largest (31.91
percent) in 1960/61, has shown a gradual decrease in its share and has come down to 28.20
percent in 2009/10. In terms of employment, the performance of this sector is, however,
remarkable. It has exhibited significant increment from 12.68 percent in 1960/61 to 43.60 percent
during 2009/10. There has been remarkable jump in the share of construction in total secondary
output in the post-reforms period, hence positing the rise in the importance of construction sector
in the country in recent years. Needless to say, increase in the share of employment in construction
results in increase in unskilled and low productive employment as envisaged from its employment
elasticities. The share of mining and quarrying and public utilities to secondary sector’s total
employment and output is awfully negligible. Interstingly, the share of the last two sub-sectors has
declined during the post-reforms period (1993/94-2009/10) on both employment and output front.
It is evident from the above findings that India’s secondary sector is led by manufacturing and
construction both in terms of output and employment. More than 95 percent of secondary sector
employment in India constitutes manufacturing and construction. However, low output share in
relation to employment share is disconcerting for the sector as it indicates low labour productivity.
Evidently, there is shifting of labour from manufacturing to construction and such shifting
promotes employment mostly amongst the unskilled labour leading to low labour productivity.
High productive sectors in secondary and especially manufacturing fail to create employment,
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thanks to changing production structure backed by capital-intensive technology as an upshot of
privatisation, trade liberalisation and free market competition.
Table 7
Distribution of Formal and Informal Employment according to Broad Sectors (in million)
1999/2000
2004/2005
2009/2010
Economic
Activities
Informal Formal Total Informal Formal Total Informal Formal Total
empt
empt
empt
empt
empt
empt
empt
empt
empt
234.7
2.9
237.7
256.1
2.9
258.9(
242.9
2.0
244.5
Agriculture
(98.7)
(1.2)
(100)
(98.8)
(1.1)
100)
(99.1)
(0.8)
(100)
55.5
9.4
64.9
76.6
9.1
85.7
88.8
10.2
99.0
Industry
(85.5)
(14.4)
(100)
(89.39)
(10.6)
(100)
(89.6)
(10.3)
(100)
22.8
94.2
89.9
22.9
112.8
91.4
24.9
116.3
71.4
Services
(75.8)
(24.1)
(100)
(79.7)
(20.3)
(100)
(78.5)
(21.4)
(100)
35.0
396.7
422.6
34.8
457.5
423.1
37.2
460.2
361.7
Total
(91.1)
(8.8)
(100)
(92.3)
(7.6)
(100)
(91.9)
(8.0)
(100)
Note: Figures in the parenthesis represent percentage shares.
Source: National Commission for Enterprises in the Unorganized Sector (NCEUS, 2008) and Calculated
from NSS 66th Round, Employment & Unemployment Survey, 2009-10.
Quality of Employment in Secondary Sector: Formal Vs Informal
As the structure of the work force in the secondary sector, trends and core compositions of the
sector have witnessed considerable changes over time and more so, since the period of economic
reforms, the critical issue is the quality of employment generated in the economy. The quantity
and the quality of employment, though closely related, are analytically different issues, needing
differential responses. The quality of work has several dimensions including regularity of work
(employment security), income/earning security, social security and decent conditions of work
covering minimum wages, reasonable hours of work and work environment. These different
dimensions have differing impacts on economic, social and psychological state of wellbeing of the
workers (Mukherjee & Majumder, 2008). One prominent aspect of the quality of employment is to
what extent employment is available in formal sector vis-à-vis informal sector. This section briefly
presents such scenario for the secondary sector of India.
Interestingly, secondary sector’s employment is predominantly informal in nature. The percentage
of informal employment in this sector has increased from about 85.56 percent in 1999/2000 to
89.66 percent in 2009/10 (Table 7). Much of the post-reform growth in secondary sector
employment is low-productive, low-income and low-quality in nature. As the construction sector
has been exhibiting continual rise in employment share, its increasing informalised employment
structure remains one of the serious challenges of the current labour market dynamics.
Secondary Sector Employment across Major States
In a diverse socio-cultural, economic and geographical setting like that of India, not only are the
sectors likely to perform differently on output and employment front but also are the states
expected to face differential linkages. Moreover, as the preceding discussions on employment
intensity of growth at the aggregate as well as at the sectoral level reveal interesting issues, an
analysis at the state level may be useful to understand the dynamics of the employment of the
secondary sector better. The present section, thus, examines the employment pattern across major
states of India during the period 2009-10 and offers implications thereof.
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The share of secondary sector and its sub-sectors in total employment displays a fair degree of
variation across states. Secondary sector’s employment share ranges from a high of 31.4% in
Jharkhand to a meager 8.7% in Assam. Other states, which have registered employment share in
secondary sector greater than the national average (21.50 percent), are Kerala, Haryana, Punjab,
Tamil Nadu, West Bengal, Rajasthan and Uttar Pradesh. The most laggard states on this front are
Assam followed by Chhattisgarh, Madhya Pradesh and Bihar. Gujarat and Maharashtra, despite
being frontrunners on industrialisation, fail to create much dent in terms of the share of secondary
sector employment. As expected, urban secondary sector employment share (34.4 percent) is
double the share of the rural secondary sector employment (17.4 percent). The leading states in
urban employment share in this respect are Haryana (43.5 percent) followed by Chhattisgarh (39.5
percent), Tamil Nadu (38 percent) and Gujarat (37.1 percent), while the most laggard ones are
Assam (21.3 percent) followed by Himachal Pradesh (24 percent) and Bihar (24.4 percent). In
rural employment of the secondary sector, Jharkhand (30.8 percent) records the highest share
followed by Kerala (28.6 percent), Rajasthan (25.6 percent) and West Bengal (23.2 percent)
(Table 8).
Table 8
Employment Share of Secondary Sector across Major States (2009-10)
Total (Rural + Urban)
Urban
Rural
MQ MF EGW CN
SS MQ MF EGW CN
SS MQ MF EGW CN SS
States
0.9 11.7
0.2 7.9 20.7 0.8 22.7 0.6 12.2 36.3 0.9 8.7
0.1 6.7 16.4
Andhra Pr
0.5 4.0
0.3 3.9 8.7 2.0 9.3 2.4 7.6 21.3 0.3 3.5
0.0 3.5 7.3
Assam
0.1 10.7 16.6 0.0 11.7 0.4 12.3 24.4 0.0 5.2
0.1 10.5 15.8
0.0 5.8
Bihar
0.1 4.1 11.3 5.0 22.6 0.6 11.3 39.5 0.6 3.3
0.0 2.9 6.8
Chhattisgarh 1.2 5.9
0.2 13.9
0.3 5.1 19.5 0.2 29.7 0.7 6.5 37.1 0.3 5.8
0.1 4.4 10.6
Gujarat
0.0 15.4
0.7 11.1 27.2 0.0 30.8 1.1 11.6 43.5 0.0 9.3
0.5 10.9 20.7
Haryana
0.0 4.1
1.7 14.9 20.7 0.0 12.4 2.5 9.1 24.0 0.0 3.6
1.7 15.3 20.6
Himachal Pr
0.1 10.1
1.1 10.1 21.4 0.4 20.3 2.0 11.0 33.7 0.0 7.5
0.9 9.8 18.2
J&K
2.4 7.7
0.3 21.0 31.4 6.2 8.7 1.1 18.5 34.5 1.6 7.5
0.1 21.6 30.8
Jharkhand
0.7 10.4
0.3 6.9 18.3 0.5 20.7 0.9 12.8 34.9 0.8 5.9
0.0 4.4 11.1
Karnataka
1.0 13.0
0.4 15.1 29.5 0.7 16.8 0.3 14.1 31.9 1.1 11.7
0.4 15.4 28.6
Kerala
1.4 6.1
0.2 7.8 15.5 1.4 18.2 0.7 13.1 33.4 1.4 3.4
0.0 6.6 11.4
Madhya Pr
0.4 5.3 17.1 0.3 22.5 0.8 7.8 31.4 0.3 4.7
0.2 3.8 9.0
Maharashtra 0.3 11.1
0.9 8.9
0.3 10.0 20.1 1.6 18.7 1.2 13.4 34.9 0.8 7.5
0.1 9.6 18.0
Odisha
0.1 12.8
0.7 12.6 26.2 0.1 23.8 1.0 11.7 36.6 0.2 7.4
0.5 13.0 21.1
Punjab
1.3 6.3
0.3 19.2 27.1 0.6 17.9 0.1 14.8 33.4 1.4 3.7
0.3 20.2 25.6
Rajasthan
0.4 17.1
0.3 10.1 27.9 0.6 26.6 0.4 10.4 38.0 0.3 11.2
0.2 10.0 21.7
Tamil Nadu
0.6 12.9 20.3 0.2 17.8 1.9 11.8 31.7 0.2 3.7
0.2 13.2 17.3
Uttarakhand 0.2 6.6
0.3 10.7
0.1 11.9 23.0 0.2 25.1 0.4 10.2 35.9 0.3 7.3
0.0 12.3 19.9
Uttar Pr
0.7 19.0
0.2 6.0 25.9 0.6 26.7 0.6 6.2 34.1 0.7 16.6
0.0 5.9 23.2
West Bengal
0.6 11.0
0.3 9.6 21.5 0.6 23.0 0.6 10.2 34.4 0.6 7.2
0.2 9.4 17.4
India
Note: MQ: Mining and quarrying, MF: Manufacturing, EGW: Electricity, gas and water supply, CN:
Construction, SS: Secondary Sector
Source: Calculated from NSS 66th Round, Employment & Unemployment Survey, 2009-10.
Turning to sub-sectors, in manufacturing, West Bengal registers the highest (19 percent)
employment share followed by Tamil Nadu, Haryana, Gujarat, Kerala and Punjab. All latter states
record employment share of the secondary share above 13 percent against the national average
share of 11 percent only. The most laggard states on this front are Assam, Himachal Pradesh,
Bihar, Chhattisgarh, Madhya Pradesh, Rajasthan, Uttarakhand, Jharkhand and Odisha, each
Journal of Regional Development and Planning, Vol. 2, No.2, 2013
167
having a share much less than the national average share. In construction, Jharkhand remains at
the top with 21 percent share followed by Rajasthan (19.2 percent) and Kerala (15.1 percent). The
trailing ones are Assam (3.9 percent) followed by Chhattisgarh (4.1 percent), Gujarat (5.1
percent), Maharashtra (5.3 percent) and West Bengal (6 percent). Jharkhand registers the highest
share of employment (2.4 percent) in mining and quarry at the aggregate as well as in rural (1.6
percent) and urban areas (6.2 percent). In line with the situations at the all India level, the share of
employment of this sub-sector to the total employment is, however, very small across all the
states. Share of public utilities is equally insignificant across all the states. Manufacturing sector is
largely concentrated in urban areas and hence, a significant difference is observed in the share of
employment of this sector across the states when comparison is made between rural and urban
areas.
While above analysis was about the relative employment share of secondary and its sub-sector to
total employment according to states, table 9 presents the relative share of each sub-sector to the
total employment of the secondary sector. Interstingly, the findings indicate that while the share
of manufacturing at the national level is higher than that of construction, in rural areas,
construction has a greater share than manufacturing. At the aggregate, the secondary sector
employment share is predominantly led by construction in states like Himachal Pradesh (71.98
percent), Rajasthan (70.85 percent), Jharkhand (66.88 percent), Bihar (64.46 percent) and
Uttarakhand (63.55 percent). On the other hand, the states, which have predominance of
manufacturing-backed employment, are West Bengal (73.36 percent) followed by Gujarat (71.28
percent) and Maharashtra (64.91 percent). In Gujarat, over 80 percent of the urban employment in
secondary sector is from manufacturing. The next is West Bengal with a share of about 78 percent
followed by Maharasthra, Haryana, Tamil Nadu and Uttar Pradesh, each having a share of about
70 percent. In construction, although rural economies predominate in almost all the states, states
like Jharkhand and Bihar, urban seondary sector employment share is the highest in construction
with more than 50 percent of urban secondary sector employment drawn from it.
DETERMINANTS OF EMPLOYMENT INTENSITY OF SECONDARY SECTOR
In order to overcome the challenges and strengthen the prospects of secondary sector towards
promoting employment may need strong macroeconomic fundamentals and a right combination of
structural policies. Following the literature, the present study identifies seven broad
macroeconomic factors namely growth rate of GDP, investment, inflation, export, import, labour
productivity and share of services to GDP. These factors are considered significant from the
standpoints of their possible influences on India’s employment intensity of secondary sector. The
literature on growth of secondary sector and employment provides theoretical arguments and
empirical evidences on these vital issues. The employment intensity of the secondary sector is
likely to depend upon the structural characteristics of an economy including the potential for
technological change and productivity growth, the existing degree of regulation and inherent scope
for domestic and international competition (Kapsos, 2005). Hence, the present study attempts to
examine the possible linkage of some such macroeconomic factors with the employment intensity
of the secondary sector. The rationale behind the selection of the factors and their possible
relations with employment intensity of secondary sector growth in India are discussed below
before the empirical model is specified and tested.
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Table 9
Distribution of Secondary Sector Employment within sub-sectors across States (2009-10)
Total (Rural + Urban)
Urban
Rural
States
MQ MF EGW CN SS MQ MF EGW CN SS MQ MF EGW CN
4.4 56.5
1.0 38.2 2.2 62.5 1.7 33.6 5.5 53.1 0.6 40.9 4.4 56.5
Andhra Pr
3.5 44.8 9.4 43.7 11.3 35.7 4.1 48.0 0.0 48.0 5.8 46.0
5.8 46.0
Assam
0.0 34.9
0.6 64.5 0.0 48.0 1.6 50.4 0.0 32.9 0.6 66.5 0.0 34.9
Bihar
0.9 36.3 12.7 57.2 1.5 28.6 8.8 48.5 0.0 42.7 10.6 52.2
Chhattisgarh 10.6 52.2
1.0 71.3
1.5 26.2 0.5 80.1 1.9 17.5 2.8 54.7 0.9 41.5 1.0 71.3
Gujarat
0.0 56.6
2.6 40.8 0.0 70.8 2.5 26.7 0.0 44.9 2.4 52.7 0.0 56.6
Haryana
0.0 19.8
8.2 72.0 0.0 51.7 10.4 37.9 0.0 17.5 8.3 74.3 0.0 19.8
Himachal Pr
5.1 47.2 1.2 60.2 5.9 32.6 0.0 41.2 5.0 53.9 0.5 47.2
0.5 47.2
J&K
7.6 24.5
1.0 66.9 18.0 25.2 3.2 53.6 5.2 24.4 0.3 70.1 7.6 24.5
Jharkhand
1.6 37.7 1.4 59.3 2.6 36.7 7.2 53.2 0.0 39.6 3.8 56.8
3.8 56.8
Karnataka
3.4 44.1
1.4 51.2 2.2 52.7 0.9 44.2 3.9 40.9 1.4 53.9 3.4 44.1
Kerala
1.3 50.3 4.2 54.5 2.1 39.2 12.3 29.8 0.0 57.9 9.0 39.4
9.0 39.4
Madhya Pr
1.8 64.9
2.3 31.0 1.0 71.7 2.6 24.8 3.3 52.2 2.2 42.2 1.8 64.9
Maharashtra
1.5 49.8 4.6 53.6 3.4 38.4 4.4 41.7 0.6 53.3 4.5 44.3
4.5 44.3
Odisha
0.4 48.9
2.7 48.1 0.3 65.0 2.7 32.0 1.0 35.1 2.4 61.6 0.4 48.9
Punjab
4.8 23.3
1.1 70.9 1.8 53.6 0.3 44.3 5.5 14.5 1.2 78.9 4.8 23.3
Rajasthan
1.4 61.3
1.1 36.2 1.6 70.0 1.1 27.4 1.4 51.6 0.9 46.1 1.4 61.3
Tamil Nadu
3.0 63.6 0.6 56.2 6.0 37.2 1.2 21.4 1.2 76.3 1.0 32.5
1.0 32.5
Uttarakhand
1.3 46.5
0.4 51.7 0.6 69.9 1.1 28.4 1.5 36.7 0.0 61.8 1.3 46.5
Uttar Pr
0.8 23.2 1.8 78.3 1.8 18.2 3.0 71.6 0.0 25.4 2.7 73.4
2.7 73.4
West Bengal
2.8 51.2
1.4 44.7 1.7 66.9 1.7 29.7 3.5 41.4 1.2 54.0 2.8 51.2
India
Note: MQ: Mining and quarrying, MF: Manufacturing, EGW: Electricity, gas and water supply,
Construction,
Source: Calculated from NSS 66th Round, Employment & Unemployment Survey, 2009-10.
SS
1.0
3.5
0.6
0.9
1.5
2.6
8.2
5.1
1.0
1.6
1.4
1.3
2.3
1.5
2.7
1.1
1.1
3.0
0.4
0.8
1.4
CN :
Rise in labour productivity in any sector tends to reduce its employment intensity. If improved
labour productivity causes rise in wages, which, in turn, may lead to substitution of capital for
labour, employment is likely to fall (Krugman, 1994). Hence, it can be proposed that higher the
labour productivity, lower would be the employment intensity of secondary sector growth. Labour
productivity is measured as a ratio of output to total number of persons employed (Mourre, 2006).
GDP growth and the sectoral composition are considered important determining variables.
Structural change in favour of fast growing sector may lead to improvement in employment
intensity of growth (Mourre, 2006). From the above standpoint, the present study incorporates the
share of the services into the model to find out how the compositional effects matter in the context
of the Indian economy (Padalino and Vivarelli, 1997; Kapsos, 2005). It is hypothesized that rise in
the share of services to the country’s GDP is likely to cause rise in employment intensity of the
secondary sector.
Higher employment content of economic growth also necessitates size of trade and investment in
the economy to improve. Free flow of trade and capital investments (Dawson, 1998) provides
incentives for entrepreneurship, which may carry significant bearing on labour market outcomes
(Slaughter, 1997). Hence, the present study proposes that higher foreign trade and higher
investment would lead to higher employment intensity of secondary sector growth in India.
Export, import and investment are expressed as ratios to the GDP.
Inflation is yet another important determinant of employment elasticity in secondary sector. There
are two types of effects that inflation can create namely ‘grease effect’ (Tobin, 1972) and ‘sand
169
Journal of Regional Development and Planning, Vol. 2, No.2, 2013
effect’ (Friedman, 1977). While ‘grease effect’ tends to suggest that inflation can speed up the
adjustment to the long run equilibrium, ‘sand effect’ posits that inflation may cause resource
misallocation leading to decline in employment. With such contrasting findings, the impact of
inflation on employment intensity of growth in secondary sector remains an empirical question.
Inflation variable is operationalised by considering annual rate of inflation based of GDP deflator
(Loboguerrero and Panizza, 2003). Table 10, accordingly, presents all the variables, dependent
and independent, and indicates the methods of their measurement.
Table 10
Methods of Operationalisation of Variables
Variables
Employment Intensity
Economic Structure
Macroeconomic Volatility
Trade and Investment
Method of Measurement
Employment elasticity of the Secondary sector Growth
The share of tertiary sector to GDP
Labour productivity
Rate of inflation
Export as a ratio of GDP
Import as a ratio of GDP
Investment as a ratio of GDP
Model Specification
The study is based on time series data at the national level. The time period chosen for the study is
from 1960/61-2009/10. In order to find out the impact of macroeconomic determinants on
employment intensity of secondary sector growth, the following ordinary least squares estimation
of the multiple regression model with k explanatory variables is specified.
Yt = α + β1X1t + β2X2t+ β3X3t……..+ βkXkt + et
(5)
where X1t is the tth observation on the first explanatory variable (for t = 1… N observations).
Results and Discussion
The regression results (Table 11) reveal that among the fundamental macroeconomic factors,
secondary sector employment intensity in India is found to have been affected by output growth,
investment, export, import, labour productivity and share of services to the GDP. There are
evidences that these are elements that act as driving forces for the secondary sector by bringing
changes in the production factors, system and markets. Rise in investment in the economy and
increase in imports tend to promote employment in the secondary sector. However, higher export
deters employment intensity of this sector. The latter relationship may be attributed partly to the
capital-intensity of the export-oriented industries in India and poor export base of the country.
However, the country’s import causes the employment to rise possibly because India’s import
volume is considerably high and it ensures high output growth.
Lower the labour productivity, higher is the employment intensity of growth of the secondary
sector, thereby supporting the Keynesian fundamentals (Hussain and Nadol, 1997). Further, the
share of services to GDP exerts positive impact on employment intensity of growth of the
secondary sector. It may, thus, indicate that there is a strong inter-linkage between services and the
secondary sector.
Table 11
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Relationship between Employment Elasticity and Macroeconomic Variables
Variables
Growth Rate of GDP
Estimated Coefficients
0.001* (1.788)
Investment
0.035* (2.210)
Inflation
0.001 (1.164)
Export
-0.001** (-4.045)
Import
0.001** (4.119)
Labour Productivity
-0.045** (-4.402)
Share of Services to GDP
0.001** (8.136)
Constant
0.559** (111.6)
F-stat
18.579** (7.41)
DW-stat
2.034 (0.386)
BG-Stat
0.051 (0.854)
Adj. R-squared
0.71
N-Obs, N-Var
50, 7
Note: Numbers in the parentheses are t-statistics; **indicates parameters are significant at 1%
probability level and * indicates parameters are significant at 10% probability level
IMPLICATIONS AND CONCLUSION
This study analyses the scenarios for three distinguishable phases of the Indian economy viz. postindependence period (1960/61-1983/84), pre-liberalisation period (1983/84-1993/94) and postliberalisation period (1993/94-2009/10). While secondary sector’s output growth has shown
fluctuations over time, the employment elasticity has remained, by and large, stable. Overall
employment elasticity is, however, not very encouraging. It is important that secondary sector
grows at a faster rate and continues to remain more labour-intensive. In view of the construction
sector gaining momentum, it is perhaps important to ensure more formal employment in this
sector. Increasing casualisation and informalisation of labour remains the single most serious
challenge in the secondary sector and more so in manufacturing and of late, construction. Unless
necessary measures are taken to protect the informal labour market, India’s challenge towards
ameliorating labour problems is bound to multiply with the rising of the number of the working
poor and associated eventualities.
It is right that improvement in labour productivity in the secondary sector is necessary to improve
the quality of employment. It may, however, undermine efforts to enhance the quantity of labour
employed. Given the fact that both quality and quantity are important, there is perhaps a need to
provide a policy framework that ensures expansion in employment without compromising
productivity increase. This may necessitate, as Heintz (2006) puts it, rise in output as rapidly as
the productivity. Currently, construction sector’s share in the secondary sector is rising and its
employment share is also on the rise. Besides, employment elasticity of this sub-sector is greater
than unity, thus indicating possibly a very low labour productivity. Given the fact that quality of
employment and labour productivity are correlated, it is necessary that labour productivity is not
brought down deliberately to ensure high employment. Secondary sector in general and
construction sector in particular must witness improvement in their output growth faster than the
rise in labour productivities.
Journal of Regional Development and Planning, Vol. 2, No.2, 2013
171
In this context, it may be stated that there ought to be inter-sectoral transfer of labour and tendency
of convergence of sectoral labour productivities to bring about improvement in employment
conditions in the secondary sector. In this respect, the following points merit attention. There are
historical evidences that with economic development, contribution of agriculture to GDP declines
and consequently, contribution of industry followed by services rises. Employment shift should
necessarily take the same course. Ironically, the Indian economy does not seem to have been
following the conventional path. Growth of industrial output has been much less than desirable,
while the service sector has grown at an incredible rate with, however, no corresponding rise in
employment. Hence, it may be necessary to reorient our focus towards developing industrial sector
which should be labour-intensive. Labor-intensive industries require low skills and thus, can help
the workforce shift smoothly from agriculture to industry. This would vent the door for further
shifting to services in later stages inter alia through up-gradation of skills.
It is interesting to note that India’s service sector growth can contribute towards the promotion of
employment in secondary sector, though services by themselves fail to be more employment
intensive. As the Indian economy has been experiencing structural economic changes in that
service sector grows at a faster rate, the latter may be helping the industries grow rapidly. To be
precise, services like ICT , banking, insurance, health etc are creating level playing fields for the
industries in India. It is, thus, imperative to maintain and sustain such linkages between services
and industries.
That increase in investment promotes employment in secondary sector purports to suggest that
more investment-friendly measures must be put in place to promote investment in the country.
Suffice to state that market should remain open to international competitions. This would warrant
reduction in barriers to foreign trade and foreign direct investment. As there are ample evidences
of market failure, a conducive fiscal environment through selective government intervention
remains the key. There is also a need for an improvement in the functioning of labour markets and
institutions to adjust to globalisation and the missing link of the secondary sector with other broad
sectors of the Indian economy.
To conclude, it may be stated that a well functioning secondary sector is the key to India’s target
of achieving high and sustainable growth. Growth of secondary sector provides important
opportunities to strengthen employment and productivity. A comprehensive strategy is, thus,
required to address the secondary sector’s challenges in respect of its growth and employment in
the country.
_____________________________________
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