THE PUZZLE OF JOBLESS GROWTH IN INDIAN MANUFACTURING

In the 1980's, India experimented with deregulation in industry and tr ade. Manufacturing output accelerated but employment declined, raising doubts about the desirability of the policy reforms. This paper propo ses an explanation of employment behaviour in terms of increases in to tal factor productivity, in actual hours worked, and in the product wa ge. Using robust methods, it is shown that neglect of hours worked res ults in a substantial upward bias in estimates of the wage elasticity. Growth in productivity and hours appears to be associated with the re form process, with the increase in hours worked reflecting recovery of lost time. To the extent that hours must hit a ceiling, the drop in e mployment on this count is expected to be temporary. Other things bein g equal, employment prospects appear to depend considerably on the cou rse of productivity growth.