Movement of Real Wage Rate and Labour Productivity in Manufacturing Sector in India: The Role of Contract Labour

Abstract

The present study attempts to find out the relationship between real wage rate and labour productivity as well as the wage share and labour’s terms of trade in the manufacturing sector in India at both aggregated and disaggregated levels, during the post reform years. The empirical analysis reveals that in the organized manufacturing industry the declining wage share neutralizes the effect of increasing labour productivity resulting in stagnant wage rate growth. This absence of a link between productivity and real wage may be largely due to lower bargaining power and structural problems, including high unemployment, low wages, growing contractualisation of labour force and the large share of the informal sector in the Indian manufacturing sector. To bring back the economy to a stable growth path, efficient policy efforts on the part of the government are necessary to link productivity with real wage growth.