Fluctuating productivity performance of unorganised manufacturing in the post - 1990s

Vinish Kathuria, Rajesh Raj S Natarajan, Kunal Sen

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In this paper, an attempt is being made to analyse the productivity performance of the unorganised manufacturing sector in India for 15 major states for the period 1994-95 to 2005-06, using the National Sample Survey (NSS) unit level data. Productivity is measured by using both partial (labour productivity) and total factor productivity (TFP) measures. The Cobb-Douglas production function is estimated by using the Levinsohn and Petrin method, which addresses the potential simultaneity bias in production function estimations Estimations show that labour productivity witnessed a fuctuating trend in the unorganised sector as it grew at a rate of 7 per cent during the first period, viz. 1995-2001, but fell considerably during the second period, viz. 2001-2006, thereby registering a huge decline of 12.6 per cent. An across-the-board increase in the capital-labour ratio has been noticed over time in all the states but the growth slowed down during the second period. It has also been found that capital intensity acted as a major driver of labour productivity in the sector. Production function estimates demonstrate that capital rather than labour played a significant role in the production process for the sector. The TFP reported a steady decline in the sector similar to the trend in labour productivity. The declining labour and TFP, on the one hand, and the increasing capital intensity of the unorganised sector, on the other hand, are causes of worry and raise several important questions.
Original languageEnglish
Pages (from-to)285-302
Number of pages17
JournalThe Indian Journal of Labour Economics
Issue number2
Publication statusPublished - 2010

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  • Global Development Institute


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