Contractualization and Wage Differences: Evidence from Organized Manufacturing Industries in India

Abstract

The post-reform scenario of inflow of capital and technology associated with labour market flexibility has changed the employment portfolio in Indian manufacturing industries. The shift of workers from directly employed status to contractual status has resulted in wage differences in different ways. This study is an attempt to determine inter-labour, inter-temporal and inter-state wage differences. The study also finds the impact of capital–labour ratio and labour productivity on wage disparity and the possibility of wage convergence (if any). The study is based on secondary data. Using simple statistical techniques and applying ordinary least square method, the study finds a difference in average daily earnings of directly employed workers and contract workers. The difference is found to be high from the average daily earnings of all employees. This is on account of increasing importance of non-production workers in relation to production workers in the manufacturing sector. Consequently, the share of wages in total emoluments is decreasing. The study suggests increasing labour productivity via appropriate education and skill in order to deal with wage disparity and drive the wages towards convergence in the long run.