Technology and Labour Market: Insights from Indian Manufacturing Sector

Abstract

Changes in technology alter the capital–labour ratio in production process and change the magnitude, scale and composition of employment, often beyond recognition. Sometimes, this leads to an enormous expansion of production and employment. Technological change may also hand over many repetitive jobs to machines and decrease demand for low-skill workers, while increasing demand for high-skilled workers to manufacture, program and control these machines. This alters the skill composition of workforce and may worsen the wage gap between skilled and unskilled workers. In this paper, we explore the issue of technological change and its impact on Indian labour market from three angles—impact on aggregate employment, skill composition of workforce and wage disparity. We find a mixed impact of technological change on employment. At industry level, high levels of technological change are associated with moderately high level of employment expansion, but at regional level, high-technological change is accompanied by relatively lower employment growth. As expected, technological progress has been skill biased and wage inequality has increased in both the high technological progress sectors and regions. This increasing polarisation of the labour market is perhaps behind the rising inequality, social tensions and conflicts in India in recent times.