Globalisation and Performance of Manufacturing Sector in Punjab and Tamil Nadu: Implications for Employment and Wages

Abstract

The present study is a comparative analysis of the performance of the organised manufacturing sector of Punjab and Tamil Nadu. The aggregate and the disaggregate picture reveals that globalisation-led growth of the manufacturing sector in Tamil Nadu has transformed its economy to a highly industrialised economy in Indian Union, and Punjab remained far behind in this context. However, the implications of the performance of the manufacturing sector on employment and wage share have shown common characteristics in both states. The increased capital intensity in the globalisation era has widened the gap between labour productivity and wage share in both states. Since 1991, the emoluments (capitalist share) have increased at a higher rate than the real wages. The decomposition analysis of wage share shows that the falling labour–capital ratio and increased contractualisation of the labour market are some of the important reasons behind the low growth of employment and fall in the wage share. Moreover, the disaggregated analysis reveals a secular increase in the use of capital per unit of labour in labour-intensive industries that has further reduced the employment elasticity of gross value added (GVA) in both states. It also highlights that regional heterogeneity plays an important role in the performance of a particular industry with respect to employment and wage share. JEL Codes: F60, J24, L60