Impact of Technological Change on Employment: Evidence from the Organised Manufacturing Industry in India

Abstract

This paper makes an attempt to understand the impact of technological change on employment in the organised manufacturing industry in India during the period 1981–1982 and 2014–2015. It classifies the manufacturing industry in India into capital-intensive industry and labour-intensive industry, and applies the Log Mean Divisia Index—a complete decomposition model—to examine the effect of pre-defined factors such as (1) activity effect (scale effect), (2) structural effect, and (3) intensity effect (technological effect) on employment change in the manufacturing industry in India. The study dissects the specified timeframe from 1981–1982 to 2014–2015 into the pre-reform period (1981–1982 to 1990–1991), the first decade of economic reform (1991–1992 to 2000–2001), and the second decade of reform (2001–2002 to 2014–2015). Although the estimated effect of each factor on employment change varies across different periods, it is found that the increasing manufacturing activity raised the employment in the industry. The positive contribution of activity effect on employment generation in the industry, however, has been reduced by negative labour intensity effect or technological progress. Although the structural effect on employment is observed to be different in diverse timeframes, its impact on employment change in the industry is negligible. The findings of the study may be useful for evidence-based policymaking to meet the National Manufacturing Policy (2011) target to raise the share of manufacturing from 15% to about 25% of the national GDP, and at the same time creating an additional 100 million jobs by 2022.