<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>The employment structure of India's formal manufacturing sector has undergone substantial changes since the early 2000s with a steep rise in the use of contract workers in place of directly hired workers. Much of the existing literature has attributed the widespread use of contract labour to India's rigid employment protection legislation. The resulting informalisation of the workforce in the organised sector raises concerns about the sustainability of employment growth. Using a 14-year plant-level panel data from the Annual Survey of Industries, we find that in addition to labour market rigidities and the existence of a wage differential between contract and directly hired workers, plants in the organised manufacturing sector have another important incentive to hire contract workers. Plants appear to be using contract workers to their strategic advantage against the directly hired workers to keep their bargaining power and wage demand in check. Importantly, the strength of this bargaining channel varies across plants depending on their capital intensity of production, size and existing contract worker intensity.</p>
</abstract>

The employment structure of India's formal manufacturing sector has undergone substantial changes since the early 2000s with a steep rise in the use of contract workers in place of directly hired workers. Much of the existing literature has attributed the widespread use of contract labour to India's rigid employment protection legislation. The resulting informalisation of the workforce in the organised sector raises concerns about the sustainability of employment growth. Using a 14-year plant-level panel data from the Annual Survey of Industries, we find that in addition to labour market rigidities and the existence of a wage differential between contract and directly hired workers, plants in the organised manufacturing sector have another important incentive to hire contract workers. Plants appear to be using contract workers to their strategic advantage against the directly hired workers to keep their bargaining power and wage demand in check. Importantly, the strength of this bargaining channel varies across plants depending on their capital intensity of production, size and existing contract worker intensity.

Informalization of the formal sector: Evidence from India's manufacturing industries

Indian Council for Research on International Economic Relations

IZA Journal of Development and Migration

This work is licensed under the Creative Commons Attribution 4.0 International License.

The employment structure of India's formal manufacturing sector has undergone substantial changes since the early 2000s with a steep rise in the use of...

Informalization of the formal sector: Evidence from India's manufacturing industries

Published Online: Dec 08, 2023

Page range: -

Received: Mar 01, 2023

DOI: https://doi.org/10.2478/izajodm-2023-0005

Keywords
contract workers, labour regulations, firm-worker bargaining, manufacturing sector, formal/informal

© 2023 Radhicka Kapoor et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Informalization of the formal sector: Evidence from India's manufacturing industries

Published Online: Dec 08, 2023

Page range: -

Received: Mar 01, 2023

DOI: https://doi.org/10.2478/izajodm-2023-0005

Keywordscontract workers, labour regulations, firm-worker bargaining, manufacturing sector, formal/informal

© 2023 Radhicka Kapoor et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Keywords
contract workers, labour regulations, firm-worker bargaining, manufacturing sector, formal/informal