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Wage Share in Indian Manufacturing: A Disaggregate Analysis at Major Industry Groups
Of late, the rising inequality, whether that is in wealth or income, has received the attention of both academic and policy makers. Central to income inequality are the distributional issues; that is labour’s share in income. The International Labour Organisation (2015), in its Global Wage Report 2014/15, argued that rising inequality across the globe was more of a labour market phenomenon. Lower wage rate or disproportionate increase in productivity and wage contributes to income inequality. Lack of paid employment also compounds the problem of income inequality. Wage share in total value added mirrors these labour market developments and thus wage share becomes a relevant issue from the welfare point of view. Generation of employment in the manufacturing sector has remained a major goal of industrialisation in India. Several studies have pointed out declining wage share in this sector, particularly since the early 1990s. Wage share can decline if manufacturing becomes more capital intensive which tends to increase the share of capital in income. Capital intensity differs from industry to industry. Thus, gaining a good understanding of the wage share requires a detailed analysis at the industry level. This paper aims to explore the link between real wage growth and labour productivity and their link with wage share across industries. Findings of this study would contribute to a better understanding of the factors responsible for wealth and income inequality, and also the welfare implications of the changes perceived to be important for ease of doing businesses, of which labour market related issues have become central. This study relies on Annual Survey of Industries (ASI), which is the principal source of data for studies in manufacturing. As the ASI has used different National Industrial Classifications (NICs), this study concords ASI data series at the disaggregate level starting from 1973–74.

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