Job Creation and Job Destruction in Indian Manufacturing

Abstract

The reallocation of jobs is crucial in determining the movement of workers, the unemployment rate, the wage dynamics, the life cycle of firms and industries and the aggregate productivity growth. This article analyses job reallocation in terms of simultaneous establishment-level job creation and job destruction in Indian organised manufacturing. The study employs longitudinal data from the Annual Survey of Industries (ASI) from 2004–2005 to 2014–2015 and the methodology stated in Davis and Haltiwanger (1992) to analyse job reallocation. During the expansionary periods, job creation and job destruction were rising, while during the contractionary period from 2008 to 2009 onwards, job creation declined, whereas job destruction was constant. The reallocations of jobs varied substantially across the narrow heterogeneous sectors defined by observable plant characteristics. The rate of these simultaneous job creation and destruction processes is high for many establishments and accounts for a significant portion of worker reallocation. However, the consistency of these newly created and destroyed jobs is low. Theories like ‘passive learning’ and ‘between-sector employment shifts’ partially explain this phenomenon of high job reallocation. The study provides useful policy insights to improve manufacturing employment during the process of frequent job creation and destruction, especially in a developing economy. JEL Codes: J01, J23, J21, J40, F63