Empirical Study of Industrial Classification, Structure, and Factor Intensity: An Enquiry into Dwindling Labor Intensity in a Labor-Surplus Economy

Abstract

In the process of economic growth, industrial structure exhibits changes in terms of factor intensity, output, and employment. This study presents the dynamics of industrial structure by empirically investigating the factor intensity and employment at distinct derived categories of registered Indian manufacturing industries. To probe the industrial structures, the study proposes empirical approaches for classification of industries based on use-based classification and factor intensity. The results reveal the dwindling trend of labor intensity across categories of industries implying technological progress, on the one hand, and employment concerns, on the other. An investigation of employment scenario reveals a heartening finding for the current industrial structure: both labor-intensive and capital-intensive (CI) industries exhibit increasing employment trends. In contrast with the conventional perception, capital goods industries are found to absorb an increasing amount of labor relative to capital. Accordingly, in the recent years, CI industries drove employment generation while adopting technological progress resulting from capital deepening and thereby maintained a high labor productivity.