India’s Trade-Sensitive Employment: A Comprehensive Firm-Level Analysis

The paper examines the issues related to employment generation vis-a-vis export growth. The literature identifies that the relationship is complex and analysed individual dependency on factors such as labour intensity of production process, availability of skilled labour, technology integration and business cycle to drive or thwart higher employment. In this paper, we framed a dependency model and checked it empirically using Annual Survey of Industries (ASI) data from 2008/09–2015/16. The result reiterated the close relationship among these variables in determining the link between trade and employment. In India’s exporting industries, overall growth in employment is higher than the manufacturing sector as a whole; however, critical variations are seen with respect to the firm size and factor intensity. Potential to hire more workers decreases along with the rise in capital intensity and expansion of firm size as export goes up through productivity gain route. In general, productivity has a negative relationship with all types of employment unless external demand goes up. In labour-intensive industries due to slow technology integration, productivity gain is less and firms cover up this with more employment. Given the appropriate skill set and capital, SMEs have the greater potential to increase the exports and employment in the Indian economy, especially in favourable business cycle environment. Indian economy suffers right now from the lack of adequate skills that act as a hindrance in creating employment in large-scale firms. That is why large firms engage in substituting labour for capital.