Arup Mitra

This article analyses the quantity–price relationship using the GDP and the wholesale price data for India for the period 1983–2023. The relationship is, however, assessed not in isolation rather in the broad context of share market functioning and employment growth. The advantage is that we are able to understand the linkages between economic growth and employment growth, on the one hand, and the real sector and financial sector as well. Findings confirm that employment loss resulting in a deceleration in demand can actually retard economic growth. On the other hand, the role of the share market in raising economic growth is nominal. Price is not seen to influence economic growth significantly, and it is difficult to reduce the price even after augmenting production, once it has already shot up. Hence, the price strategy to provide an incentive to the producers must be played carefully. The measurement of core inflation shows that it comprises a significant component of the total price rise, though the core inflation part has come down significantly over the years, unravelling the efficiency of the government in pursuing price management.

The roots of pro-poor growth or growth with employment generation can be strengthened by subscribing to policies that promote the provisioning of physical, health and educational infrastructure and encourage the population to acquire better skills and make themselves employable. Though the relative size of the service sector outweighs that of the industry, it is pertinent that the strategy of industrialisation is recognised as instrumental to creating productive employment opportunities. Higher levels of investment, particularly in urban spaces, are expected to yield higher returns. Interspatial spill-over effects can take place, and higher levels of urbanisation can be attained. JEL Codes: E24, J14

The service sector has contributed to the overall growth and the aggregate TFPG in India but such growth configurations are not independent of certain developmental and inequality implications. It may have contributed to poverty reduction but the contribution of the industrial sector to poverty reduction could have been much faster had the industrial sector witnessed a steady growth with significant possibilities for employment generation. In fact, within the service sector the bimodal distribution in terms of income/expenditure is a popularly observed phenomenon. The vast size of the informal sector with meagre incomes and a high productivity segment with a significant rise in income over time are remarkable features of the post globalisation era. Rising wage inequality and the vast size of the informal sector are inter-connected issues. Thus, the rapid spread of the services sector, emerging much before the industrialisation process could be completed, poses concerns in relation to decent livelihood creation and poverty reduction. The high productivity segment within the services sector is relatively small in terms of employment share and is not geared to the absorption of the unskilled and semi-skilled work force. While service-led-growth (and the rapid TFP growth in market services) could result in prosperity and development of one section of the society and thus, could elevate the Indian image of being stuck in a phase of stagnation or sluggish progress, the larger issues of growing inequality have indeed become persistent and the mounting concerns of deprivation relating to land, housing, education and health have turned out to be assiduous for a vast section of the population.

Wage determination depends on a number of factors, including policy initiatives and the presence/absence of labor market institutions. Some of these unobserved variables may be captured in terms of the sector and/or the nature of employment itself. This study tries to focus on the sector of choice or employment type as an important determinant of wages/earnings, after including the important controls. However, a serious endogeneity issue is encountered as the sector/type of employment itself is a decision based on several reasons. After estimating the occupational choice function through a multinomial logit model and correcting for endogeneity, findings still confirm that wages vary across sectors and types of employment. Among the other determinants, human capital, caste-specific disadvantages, age effect, and possible gender differentials cannot be ignored. But even after considering the impact of the important controls, the sensitivity of wages/earnings to the sector/type of employment cannot be ignored. This has important policy implications: sector or type of employment with gross disadvantages needs a great deal of state support. With the same human capital endowment, caste background, and other characteristics, workers face disadvantages in certain types of jobs or sectors of employment, which could be related to recruitment practices, employment clauses, possibilities of exploitation by the contractors, low levels of productivity, and the lack of institutional support.

This study reflects on the inter-regional wage variations. If labour is highly mobile then as per the neoclassical constellation wages are expected to get equalized across space. But the variations in wages and earnings across the Indian states are seen to be significant. This prompted us to investigate the wage variation issue further. The factors considered in the study include physical infrastructure, financial infrastructure, health, growth indicator, prices, policy variable such as minimum wage set by the state governments and the fiscal deficit, which may impact on wages across space. Findings are indicative of the fact that wages and earnings respond to the infrastructure and health related indicators. Economic growth and productivity rise also show a positive impact. Besides, the minimum wage policy of the government is seen to be effective, particularly in the case of those who are located at the lower rungs. The real wages/earnings do not show any significant responsiveness to price index though the association is not totally absent. Finally, the policy implications of the study are brought out.