Sunil Jain: Labour's litany

If policy-makers are worried about employment, it is not without good reason. Even though employment growth is rising, labour intensity is falling, suggesting that the growth is not as permanent as you'd like. The usual policy response to this would be to give a boost to traditional labour-intensive industry but, as a paper by Deb Kusum Das, Deepika Wadhwa and Gunajit Kalita (all at ICRIER) brings out, labour intensity levels have gone down quite dramatically in even traditionally labour-intensive industries.

In their sample of 97 industries with an average labour intensity of 0.26, they categorised 31 as labour-intensive. In these industries, labour intensity fell by around half, from 0.63 in the 1990-91 to 1995-96 period and the 2000-01 to 2003-04 period. This took place, interestingly, at a time when labour productivity was actually rising (even more than the rise in wages in the second period) and capital productivity falling (see graphic) — in other words, capital has substituted labour for no apparent economic reason. And, mind you, this is taking place in the industries that are not associated with big (read bad) business trying to squeeze labour. This should make both labour activists and politicians think long and hard.