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Title: Capital intensity of employment, wage share variability, and income inequality : findings from two industrial areas in India
Author: Gupta, Natalie C. F.
Awarding Body: University of Manchester
Current Institution: University of Manchester
Date of Award: 2012
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Rising inequalities between and within income categories (especially labour and capital) haveemerged as an increasing concern particularly in the last two decades. One of the main reasons for this has been a sharp decline in the wage share in many countries. A declining wage share refers to a decrease in the size of the total wage bill relative to either national income or net value addition (NVA). India is an important example of this situation. Trends at the level of aggregate statistics show that the wage bill has not kept up with productivity increases. This has led to a sharp decline in the wage share, leaving researchers the task of explaining the causes (and consequences) of this decline. The research contributes towards this task by critically examining one of the main avenues ofresearch that has been used in order to explain the causes of a declining wage share in India. This refers to the hypothesis according to which this trend is the outcome of increased capital intensity of employment, or more generally labour-saving investments. The study examines the relevance of this hypothesis for dynamics taking place at a disaggregated level of analysis in Indian industrial manufacturing. In order to do this, three main questions are addressed. The first is whether a declining wage share is a necessary outcome of labour-saving investments in production, or whether other factors are also important in mediating this relationship. The second is the conditions affecting the degree to which a declining wage share also involves increased income inequalities within the labour income category, and in some cases, declining real incomes for workers. The third is the relevance of drawing upon a demand and supply framework for the treatment of the question of causality in the analysis. The study answers the questions by drawing on two very different case studies. The first is thePimpri Chinchwad Industrial Township (PCIT), located in the outskirts of Pune (State ofMaharashtra, western India). The production processes characterising many of the factoriesoperating in this area are capital intensive. The second is the art metalware industry in Moradabad (State of Uttar Pradesh, northern India). The production processes taking place in the majority of units in this area are labour-intensive. The findings suggest that the factors contributing to a declining wage share cannot be analysed without at the same time examining the distributional set-ups within which technological changes take place, and how these arrangements are changing. Firstly, many of the factors contributing towards a declining wage share are not directly caused by changes in technology, and hence skill requirements, in production. This includes the weakness (and further weakening) of the mechanisms linking wages to productivity at the firm and sectoral level. Secondly, a declining wage share also involves changing income inequalities within the labour income category. The sources of these inequalities are not only linked to differentials in skills. Thirdly, this is happening in the context of speedy changes in the economy, including changing needs. This makes the links between wages and productivity an important requirement for the labour income category to be able to benefit from increased productivity, not only as workers through the wage system, but also as consumers. Lastly, many of the variables that emerge as important in the analysis cannot be subsumed under a demand and supply framework. One of the implications for the treatment of the issue of causality is the need to move away from seeking causal links in the traditional ‘cause and effect’ framework, to questions about how certain trends come about. This also has consequences for the normative side of the debate.
Supervisor: Mccourt, William; Barrientos, Armando Sponsor: Brooks World Poverty Institute
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Income Distribution ; Wage Share ; Indian Manufacturing ; Income Inequality