Tertiarisation of the Indian labour market: a new growth engine or sending distress signals?

Abstract

Tertiarisation of the labour market has been associated globally with economic progress. In developing countries, labour market deformities may push people into the service economy out of distress. This paper examines the tertiarisation process in the Indian labour market to identify the reasons behind such trends and the likely impact of such movements. It is observed that the employment growth in the tertiary sector had been dynamic and growth-induced during the 1980s, but in recent times has become distress-driven. Sub-sectors within the tertiary sector are behaving differently, indicating the heterogeneity of this sector. Policymakers should note these issues and take appropriate steps not only to boost high-end jobs but also to improve productivity and returns in low-end jobs. Only then will a tertiary sector revolution in India be beneficial to the workers en masse and be sustainable.

Keywords:

• Tertiary sector
• labour
• sectoral transformation
• inequality
• India

JEL Classifications:

• E24
• J21
• J24
• J62
• O14

Acknowledgements

The authors are grateful to Professor Ashok Mathur, Dr Uma Rani, Professor Soumyen Sikdar, and an anonymous referee for their comments on an earlier draft of this paper. Maureen Todhunter has been extremely helpful in giving final shape to the paper. The usual disclaimers apply.

Notes

* and

** refers to significance at 5% and 1% level respectively.

* and

** refers to significance at 5% and 1% level respectively.

* and

** refers to significance at 5% and 1% level respectively.

* and

** refers to significance at 5% and 1% level respectively.

* and

** refers to significance at 5% and 1% level respectively.

* and

** refers to significance at 5% and 1% level respectively.

* and

** refers to significance at 5% and 1% level respectively.

* and

** refers to significance at 5% and 1% level respectively.

* and

** refers to significance at 5% and 1% level respectively.

* and

** refers to significance at 5% and 1% level respectively. Inequality is measured by Gini Coefficient in MPCE. Gini coefficients are prepared using the POVCAL free software from World Bank. http://www.worldbank.org/lsms/tools/povcal/index.htm

* and

** refers to significance at 5% and 1% level respectively.

1. RDI has been constructed using the Modified Principal Component method to capture Cropping and Irrigation Intensity, Rural Road Connectivity, Percentage of villages having electricity, and Rural per capita expenditure on non-foodgrains.

2. The Low Income States in the Indian context are those having lower PCNSDP than the average of the states, while those above are the High Income States. Even with some changes over the two decades, the following states have retained their group-status: Bihar, Uttar Pradesh, Orissa, Madhya Pradesh, Andhra Pradesh, Rajasthan, Himachal Pradesh, and Karnataka in the low-income group; and Tamil Nadu, Gujarat, Punjab, Maharashtra, and Delhi in the high-income group. Haryana was in the low-income group initially but replaced West Bengal and Kerala from the high-income group in later years.

3. The contribution of a particular sector to overall productivity rise depends on sectoral productivity levels, sectoral productivity growth, and sectoral shares in employment. It can be easily shown that g ₀ = ∑ _i [s _0i ^e . g _i . s _0i ^p + Δ s _i ^e . (P _ti /P _0i ).s _0i ^p ]; where g ₀ = growth rate of aggregate productivity; s _0i ^e = Employment share of the ith sector in initial period; g _i = growth rate of productivity in the ith sector; s _0i ^p = Relative productivity in the ith sector w.r.t. aggregate; Δ s _i ^e = Change in Employment share of the ith sector; P _ti = Productivity in the ith sector in the final period; and P _0i = Productivity in the ith sector in the initial period.

4. We owe the idea for this methodology to Fuchs (1980).

5. To elucidate, if p _A and p _B are rates of price rise in sectors A and B respectively, then (p _B −p _A ) may serve as a measure of TFPG in sector A relative to sector B.