Article

Regional Disparities in Employment Emerging Economy Studies

6(1) 23–38, 2020
Intensity of Indian Industries: A 2020 International
Management Institute
State-level Analysis Reprints and permissions:
in.sagepub.com/journals-permissions-india
DOI: 10.1177/2394901520907729
journals.sagepub.com/home/emi

Sanjeev Kumar1 and Falguni Pattanaik1

Abstract
The pace of industrialization plays a crucial role in the economic growth of any country. It provides
high employment opportunities to the labor force, diminishes the cost of production, upsurges the
saving, and raises the demand for goods and services in the economy. Furthermore, it helps in relo-
cating surplus labor from the agriculture sector. This study is an attempt to find the states in India
wherein the industrial sector generates more jobs. It further unearths the decomposition of industrial
output and the regional concentration and dominance of industrial activities in India. To accomplish
the objectives, the study utilizes the secondary data collected from the Annual Survey of Industry. The
period of the study is from 1980–1981 to 2013–2014, and it encompasses 18 major states in India.
The findings of the study suggest that a weak relationship exists between employment and output of
the industrial sector for the majority of the states during the study period. The decomposition results
show that there exists a large degree of regional disparity in industrial growth across the states, which
is mostly driven by labor productivity and not by an increase in the supply of labour. Therefore, in
order to boost the industrial sector, the states lagging in industrial development should give more
emphasis on state-specific industrial policy to attract more investment and create more infrastructure.

Keywords
Output, employment, organized industries, employment intensity

Introduction labor market; 2–3 million join the education

In the era of globalization, the problem of
unemployment has increased rapidly in many
countries across the world, including India.
Every year, 5–7 million people join the Indian
sector, and approximately 5 million join the non-
agriculture sector. Hence, approximately 12–15
million jobs are required every year in India
(Bhattacharya & Bijapurkar, 2017). However,
only 8.5 million jobs are added to the Indian

1
Department of Humanities and Social Sciences, Indian Institute of Technology Roorkee, Roorkee, Uttarakhand, India.

Corresponding author:
Sanjeev Kumar, Department of Humanities and Social Sciences, Indian Institute of Technology Roorkee, Roorkee 247667,
Uttarakhand, India.
E-mail: vashishtsanjeev147@gmail.com
24 Emerging Economy Studies 6(1)
economy, which clearly shows a huge gap of 4.7
million jobs from 2004 to 2012. The concern is
related not only to the generation of quality and
skillful employment but also to jobs for unskilled
workers which are necessary for the Indian
economy. This is only possible with the rapid
and sustainable growth of the industrial sector. It
helps in relocating surplus labor from the
agriculture sector with high productivity. In
comparison with the agriculture, the industry has
the capability to provide more employment
opportunities to the labor force and help the
economies to grow at a faster rate.
Despite many advantages, the Indian economy
has failed to boost the industrial sector, as its
contribution to employment and output is low.
However, the output of the industrial sector has
grown at a faster pace, but the growth of
employment is low. This shows a huge gap
between employment and output growth in Indian
industries. The problem of employment generation
in the industrial sector has declined despite good
performance in the output growth rate, thus leading
to a fall in the value of employment elasticity (Sen
& Das, 2015). In addition to this, regional
disparities in the industrial sector have posed a
challenging issue in the Indian economy
(Bhattacharya & Sakthivel, 2004). Some states are
growing at a faster rate, whereas other states are
developing at a much slower pace (Goldar & Seth,
1989). However, during the post-reform period,
most of the Indian states have witnessed higher
output growth in the manufacturing sector
(Awasthi, 2000).
In the present scenario, studies have reported
that smaller Indian states such as Himachal
Pradesh and Uttarakhand have experienced higher
industrial growth rates as compared with other
larger Indian states (Kumar & Pattanaik, 2017;
Sharma, 2017). From 2003–2004 to 2008–2009,
Himachal Pradesh has achieved 25 and 39 percent
annual growth rate in employment and output of
the industrial sector, respectively. During the same
period, Uttarakhand has achieved 41 and 68
percent annual growth rate in employment and
output of the industrial sector, respectively
(Goldar, 2011). However, West Bengal is the only
state that has experienced a lower growth rate in
the manufacturing sector compared with most of
the Indian states during 1970–2002 (Das, 2007;
Das & Sengupta, 2015).
In literature, there are many indicators for
judging the employment generating capacity of
the economy. These indicators include unemploy-
ment rates, workforce participation rates, employ-
ment rates, and employment elasticity of output
(Ehwany & Megharbel, 2009; Islam & Nazara,
2000). Employment elasticity of output is also
known as the employment intensity of growth,
and it is measured with the help of employment
elasticity to output index. Specifically, it explains
the amount of employment generated with respect
to the output growth rate (Dopke, 2001; Kapsos,
2005). It further elucidates the ways through
which output and employment evolved with time.
To become acquainted with the employment gen-
erating capacity of the economy, state, industry, or
sector, it even serves as a useful tool. The concept
of employment intensity of growth has achieved
overwhelming attention through the several pub-
lications of a famous economist, Okun. In 1962,
Okun proposed a significant relationship between
output and unemployment rate and stated that for
reducing the level of the unemployment rate, the
economy needs to grow at a higher rate. According
to this law, several researchers in the recent past
have estimated the employment intensity of
growth for different countries. For example, Islam
and Nazara (2000) estimated employment inten-
sity of growth for the Indonesian economy; Dopke
(2001) for Europe; Mazumdar (2003) for group of
countries; Ali (2007) for Turkey; Seyfried
(2007/2008) for Canada, France, Germany, Italy,
UK, and the USA; Ajilore and Yinusa (2011) for
Botswana; Crivelli, Furceri, and Bernate (2012)
for a panel of 167 countries; Leshoro (2014) for
the Botswana; and Sassi and Goaied (2016) for
Tunisia.
Kumar and Pattanaik
In India, studies have examined the output and
employment relationship at a broad sectoral level
such as primary, secondary, and tertiary (Pattanaik
& Nayak, 2013a, 2013b). However, few studies
explored this relationship at a greater disaggregate
level. Most of the studies have explored the
output and employment relationship for an
industrial or subsectoral level (Goldar, 2000;
Kumar & Pattanaik, 2017; Mazumdar & Sarkar,
2004; Kannan & Raveendran, 2009; Misra &
Suresh, 2014). It has been reported in the
literature that there is a large degree of regional
disparities exists in the performance of
manufacturing sector on various parameters, that
is, labor productivity (Trivedi, 2004), wage rate,
and contractualization (Jain, 2017). In accordance
with the above-mentioned background, the
present study has examined the output and
employment relationship of the industrial sector
in India at the state level. Specifically, the study
has addressed the following issues:
1. Identification of the states in India which
generate more employment with respect to
the output of the industrial sector.
2. Examination of the drivers of industrial
growth by decomposing the industrial
output into two components, namely,
employment and labor productivity.
From the above-mentioned studies, it is clear
that there is a gap in the literature to find out the
relationship between output and employment
growth of the industrial sector at the subnational
level. It would provide an insight into the
differences in the behavior of the labor markets
of each state as well as increase the understanding
behind the different reactions of employment in
different states toward the changes in industrial
growth. Against this background, rest of this
article is structured in the following manner.
The following section presents the data source
and methodology used in this study. Later, the
section Results and Discussion is followed by
the conclusion.
25
Data Source and Methodology
Data Source
The present study uses data from the Annual
Survey of Industries (ASI), which is compiled by
Economic and Political Weekly and Research
Foundation (EPWRF). ASI is the only source that
provides data on the industrial statistics of India. It
works under the Ministry of Statistics and
Programme Implementation (MOSPI) and pro-
vides data related to the growth, structure, and
composition of organized manufacturing indus-
tries, which are registered under the factory act
1948. Therefore, these industries employed 10 or
more workers along with the use of electricity or
20 or more workers without using electricity. We
further considered the total number of persons
engaged and the gross value added (GVA) as a
measure of employment and output, respectively.
In the ASI, the data related to the GVA are reported
in their current prices.
For maintaining consistency in the prices, the
GVA data was deflated by the wholesale price
index of the manufacturing products. The
employment elasticity is calculated using both
the output and employment data. The time period
considered is from 1981 to 2014, which is divided
into two broad periods, that is, 1981–1990 and
1991–2014. The period from 1991 to 2007 is fur-
ther divided into two periods, that is, 1991–2007
and 2008–2014. The aim of dividing the entire
period is to know the impacts of major economic
events, and the focus of this study is mainly on
the state-level analysis.
Methodology
Estimation of Employment Elasticity and Growth Rates
Employment elasticity is a measure that is used to
demonstrate the responsiveness or elasticity of
employment with respect to the change in the
26 Emerging Economy Studies 6(1)
output. Furthermore, it gives the percentage
change in employment for 1 percent change in the
output growth rate. There are mainly two ways for
estimating the employment elasticity of output: (a)
arc elasticity and (b) point elasticity (Lim, 1976;
Misra & Suresh, 2014). The arc elasticity is
calculated by dividing the percentage change in
employment with the percentage change in output.
The method is applicable to the availability of data
for two points in time. However, the availability of
data for a long period makes point elasticity more
appropriate. Therefore, the present study uses the
second method for the calculation of employment
elasticity. It mainly relies on the regression
equation and is estimated with the help of the
following regression equation:
In employmenti = a + b In Outputi + ei , (1)
where ln is natural logarithm, a is intercept, ei is
error term, and b is coefficient that gives
employment intensity of growth with respect to
output growth rate.
The employment elasticity provides the
employment potential of the state or country or
sector with respect to the output growth rate. To
examine trends in the growth of employment and
output rates, the study uses two models: (a)
semilogarithmic model and (b) kinked exponential
growth model. The semilogarithmic model is used
to estimate the overall growth rates (1981–2014),
while the kinked exponential growth model is
utilized to calculate the piecewise growth rates for
the three periods (1981–1990, 1991–2007, and
2008–2014). The semilogarithmic model is
estimated with the help of the following regression
equation:
In output/employment/labor
productivity = a + b Time + e. (2)
This equation is similar to any other regression
equations with a small difference in the regressor,
which takes the value of 1, 2, 3, …, 34. The
coefficient of time measures the constant
proportional or relative change in output/
employment/labor productivity for a given change
in time. Similarly, the piecewise growth rate is
estimated using the following kinked exponential
regression equation:
In Yta a = a 1 + b1 ( d1t + d 2 k1 + d3 k1 ) + b 2
(d 2t − d2 k1 − d3 k1 − d3k2 ) + b3 (d3t − d3k2 ) + ut , (3)
where d is dummy variable, k1, k2, and k3 are
broken time periods, β1, β2, and β3 give the growth
rate for three periods, and ut is error term. Boyce
(1986) also used the equation for estimating the
piecewise agricultural growth rate for Bangladesh
and Indian State West Bengal. It has been suggested
that the kinked exponential growth model gives
better results than the conventional methods
(Goldar, 1987).
Results and Discussion
In this section, we have examined the trends and
pattern of employment intensity of the industrial
growth for a panel of 18 major states in India. It
gives a clear picture of employment with respect to
the output growth of the industrial sector of each
state, which further presents the Indian states that
have experienced the highest and lowest industrial
growth during different time period.
Employment Intensity of Industrial Growth
by State
The results from the estimated regression equation
(1) are presented in Table 1. Column 4 of the table
shows the results of the employment intensity of
industrial growth for the overall period. It shows a
significant relationship between industrial
employment and output growth for the majority of
the states, except Uttar Pradesh and Madhya
Pradesh. This relationship is negative only for West
Bengal, which suggests that the output growth of
the industrial sector in West Bengal is motivated by
labor productivity and not by employment growth.
Kumar and Pattanaik 27

Column 4 further demonstrates that Bihar is the
most labor-intensive state in India, which is
followed by Himachal Pradesh, Goa, and Tamil
Nadu. All these states have witnessed that
employment intensity of industrial growth is
approximately 0.41. Similarly, the state of
Maharashtra has witnessed the lowest employment
intensity of industrial growth in India, followed by
Assam, Andhra Pradesh, Orissa, and Gujarat. This
finding suggests that industrial growth in these
states is mostly driven by productivity growth
rather than employment growth.
Column 1 of Table 1 shows the estimated results
of employment intensity of the industrial growth for
the pre-reform period (1981–1990) and also depicts
that 10 out of the 18 states have a statistically
significant value of employment intensity of
industrial growth. Among the 10 states, Maharashtra
has shown the statistically negative value of
employment intensity of industrial growth, which
suggests that industrial growth in Maharashtra is
driven by productivity and not by increase of labor
supply. Moreover, there is a strong relationship
between employment and industrial growth in the
states of Jammu Kashmir and Himachal Pradesh,
which means that industrial growth in these states is
driven by an increase in the supply of labor and not
by labor productivity. The remaining states have
shown that there is a positive and weak relationship
between employment and industrial growth.

Table 1. Employment Intensity of Industrial Growth in India across States

1981–1990 1991–2007 2008–2014 1981–2014

(1) (2) (3) (4)
T Coef- Coef- T T
S. No States Coefficient Value ficient T Value ficient Value Coefficient Value
1. Maharashtra −0.155 −5.470* 0.051 0.637 0.844 4.529* 0.122 4.457*
2. Gujarat −0.011 −0.143 0.134 2.755* 0.445 2.564** 0.216 8.754*
3. Tamil Nadu 0.182 6.561* 0.492 7.318* 0.327 4.124* 0.40 23.227*
4. Karnataka 0.092 1.934*** 0.282 5.600* 0.526 1.408 0.318 16.189*
5. Haryana 0.349 5.496* 0.229 4.709* 0.164 1.217 0.38 17.371*
6. Uttar Pradesh 0.026 0.499 0.226 0.971 0.34 2.959** 0.021 0.505
7. Rajasthan 0.232 2.526** 0.119 1.436 0.319 2.921** 0.276 10.834*
8. Orissa 0.12 3.942* 0.027 0.205 1.078 2.650** 0.193 5.645*
9. West Bengal −0.618 −1.264 −0.157 −0.564 0.869 3.805* −0.324 −3.930*
10. Andhra 0.073 0.872 0.15 1.913*** 0.916 6.712* 0.188 4.512*
Pradesh
11. Himachal 0.76 3.097** 0.023 0.194 1.278 7.872* 0.413 9.705*
Pradesh
12. Madhya 0.158 1.602 0.877 3.028* 0.849 3.770* −0.006 −0.062
Pradesh
13. Punjab 0.484 7.914* 0.13 0.682 0.352 4.401* 0.355 10.684*
14. Kerala −0.192 −1.653 0.046 0.353 0.003 0.034 0.275 6.781*
(Table 1 Continued)
28 Emerging Economy Studies 6(1)

(Table 1 Continued)
1981–1990 1991–2007 2008–2014 1981–2014
(1) (2) (3) (4)
T Coef- Coef- T T
S. No States Coefficient Value ficient T Value ficient Value Coefficient Value
15. Assam −0.051 −1.238 −0.015 −0.219 0.382 3.378** 0.139 3.899*
16. Goa 0.113 2.792** 0.389 23.039* 0.254 4.035* 0.411 29.417*
17. Bihar 0.002 0.041 0.697 13.004* 0.317 1.822 0.768 10.986*
18. Jammu & 0.842 3.401* 0.421 4.318* 0.62 3.318** 0.338 7.235*
Kashmir
19. Mean 0.13 0.23 0.55 0.25
20. CV 2.51 1.14 0.63 0.91
Source: The authors (calculation based on the Annual Survey of Industry Data).
Note: * Significant at 1% level; ** significant at 5% level; and *** significant at 10% level. It is showing the significance level of
employment intensity.

Similarly, columns 2 and 3 of Table 1 provide
the estimated results of employment intensity of
industrial growth during the post-reform period
(1991–2007 and 2008–2014). Column 2 clearly
shows the positive and statistically significant
value of employment intensity of industrial growth
for the states of Gujarat, Tamil Nadu, Karnataka,
Haryana, Andhra Pradesh, Madhya Pradesh, Goa,
Bihar, and Jammu Kashmir. During the study
period, all these states have further demonstrated
an increasing trend in employment intensity of
industrial growth, except Haryana and Jammu
Kashmir. Considering the highest value of
employment intensity of industrial growth, it is
observed that Madhya Pradesh has become the
most labor-intensive state followed by Bihar,
Tamil Nadu, and Jammu Kashmir. The finding
suggests that industrial growth in these states are
driven by employment but not by productivity;
therefore, employment intensity in these states is
higher. The employment intensity of industrial
growth in the other states—Gujarat, Karnataka,
Haryana, Andhra Pradesh, and Goa—has been
noted to range from 0.13 to 0.38.
Furthermore, the employment intensity of
industrial growth from 2008 to 2014 is presented in
column 3 of the table. This column shows the
positive and statistically significant value of
employment intensity of industrial growth for the
majority of the states, except Karnataka, Haryana,
Kerala, and Bihar. Furthermore, an increasing trend
in employment intensity of industrial growth has
been noted for most of the states over the period of
study. It means that industrial growth has played a
crucial role in employment generation. Interestingly,
the two states, namely, Himachal Pradesh and
Orissa have performed exceptionally well in
employment generation and have witnessed
employment intensity value to be more than unity.
Industrial growth in these states is completely
driven by employment growth. Besides, the
industrially developed states such as Maharashtra,
Gujarat, and Karnataka have also successfully
generated more employment regarding industrial
growth. These states have shown employment
elasticity of 0.84, 0.45, and 0.52, respectively. The
other states such as Madhya Pradesh, Andhra
Pradesh, and West Bengal have further shown that
there is a strong relationship between employment
and industrial growth. The growth in these states is
also motivated by employment increment. It has
been observed that a large degree of variation exists
in the employment content of industrial growth
across the states; however, the variation is declining.
Kumar and Pattanaik 29

Decomposition of Industrial Growth by State the statistically significant value of output,

In this section, the growth rate of output,
employment, productivity, and decomposing
value of output for the selected states have been
discussed for the overall study period (1981–
2014) as well as the subperiods (1981–1990,
1991–2007, and 2008–2014), thus helping in
developing more detailed understanding about the
nature of growth of Indian industries across the
states. For the overall study period, the results of
the regression equation (2) for the growth of
output, employment, and productivity are reported
in Table 2. Columns 1, 2, and 3 of the table show
employment, and productivity growth rate to be at
1 percent level for most of the states. The results
clearly demonstrate an interstate variation in the
growth rate of output, employment, and
productivity. For example, the disparity of
performance between Himachal Pradesh and
Bihar is clearly evident from the selected
variables. Furthermore, a huge gap in employment
and output growth in most of the states has been
witnessed, which indicates that industrial growth
in most of the states is driven by productivity
rather than employment growth, except in Bihar
where employment motivates growth.

Table 2. Decomposition of Industrial Growth by the State from 1981 to 2014 (in %)

T Employ- T Productiv- T Productivity Employment

GVA Value ment Value ity Value Driven Driven
States (1)` (2) (3) (4) (5)
1. Maharashtra 2.90 26.450* 0.300 3.305* 2.60 32.594* 89.7 10.3
2. Gujarat 3.70 35.366* 0.790 7.585* 2.91 28.688* 78.6 21.4
3. Tamil Nadu 3.00 27.207* 1.200 15.020* 1.80 22.562* 60.0 40.0
4. Karnataka 3.60 38.425* 1.100 13.247* 2.50 30.679* 69.4 30.6
5. Haryana 3.70 38.207* 1.400 15.118* 2.30 23.668* 62.2 37.8
6. Uttar 2.41 13.682* −0.086 −0.765 2.49 17.065* 103.6 −3.6
Pradesh
7. Rajasthan 3.30 23.098* 0.800 8.112* 2.50 22.488* 75.8 24.2
8. Orissa 3.60 17.153* 0.500 3.597* 3.10 21.724* 86.1 13.9
9. West Bengal 1.40 12.709* −0.700 −7.904* 2.10 27.708* 150.0 −50.0
10. Andhra 3.10 15.112* 0.300 2.162** 2.80 28.144* 90.3 9.7
Pradesh
11. Himachal 5.00 17.213* 1.900 6.928* 3.10 12.703* 62.0 38.0
Pradesh
12. Madhya 1.70 8.572* −0.600 −3.469* 2.30 27.162* 135.3 −35.3
Pradesh
13. Punjab 2.60 18.842* 0.800 7.256* 1.80 17.996* 69.2 30.8
14. Kerala 1.80 17.637* 0.500 7.589 1.30 10.197* 72.2 27.8
15. Assam 2.40 12.825* 0.400 4.632* 2.00 9.479* 83.3 16.7
16. Goa 4.90 28.020* 2.000 21.189* 2.90 22.159* 59.2 40.8

(Table 2 Continued)
30 Emerging Economy Studies 6(1)

(Table 2 Continued)
T Employ- T Productiv- T Productivity Employment
GVA Value ment Value ity Value Driven Driven
States (1)` (2) (3) (4) (5)
17. Bihar −2.14 −3.516* −2.794 −7.410* 0.65 2.095* −30.2 130.2
18. Jammu & 4.10 8.855* 1.000 3.347* 3.10 10.257* 75.6 24.4
Kashmir
Mean 2.76 0.46 2.30
CV 0.58 2.44 0.28
Source: The authors (calculation based on the Annual Survey of Industry Data).
Notes: * Significant at 1% level; ** significant at 5% level; and *** significant at 10% level.
GVA, gross value added.

Table 3. Decomposition of Industrial Growth by the State from 1981 to 1990 (in %)

Employ- Produc- Productivity Employment

GVA T Value ment T Value tivity T Value Driven Driven
States (1) (2) (3) (4) (5)
1. Maharashtra 3.26 6.250* −0.03 −0.101 3.29 9.019* 100.91 −0.91
2. Gujarat 3.22 6.204* −0.07 −0.216 3.29 8.228* 102.18 −2.19
3. Tamil Nadu 3.96 9.608* 0.90 2.626** 3.07 13.070* 77.65 22.75
4. Karnataka 3.10 6.876* 0.40 1.234 2.70 8.563* 87.10 12.90
5. Haryana 2.61 6.028* 1.06 2.693* 1.55 3.575* 59.36 40.64
6. Uttar 5.38 8.140* 0.20 0.518 5.18 11.224* 96.29 3.71
Pradesh
7. Rajasthan 4.00 6.647* 1.00 2.856* 3.00 5.807 75.00 25.00
8. Orissa 5.30 5.810* 1.20 2.525** 4.10 6.195* 77.36 22.64
9. West Bengal 0.90 1.931*** −0.70 −2.448** 1.60 4.637* 177.78 −77.78
10. Andhra 3.60 3.725* 1.00 1.435 2.60 5.636* 72.22 27.78
Pradesh
11. Himachal 2.26 2.074** 4.45 5.336* −2.19 −3.366* −96.98 196.98
Pradesh
12. Madhya 4.82 6.005* 1.85 2.935* 2.96 7.598* 61.52 38.48
Pradesh
13. Punjab 4.87 9.202* 2.39 5.253* 2.47 5.517* 50.81 49.19
14. Kerala 3.13 8.180* 0.18 0.51 2.95 6.066* 94.29 5.71
15. Assam 4.03 4.422* 0.06 0.172 3.98 3.951* 98.59 1.41
16. Goa 2.09 3.053* 0.00 0.000 2.09 3.530* 99.99 0.01
(Table 3 Continued)
Kumar and Pattanaik
(Table 3 Continued)
Employ-
GVA T Value ment T Value tivity T Value
States (1) (2)
17. Bihar 5.79 2.866* 1.29
18. Jammu & −1.27 −0.715 −4.41
Kashmir
Mean 3.39 0.60
CV 0.51 2.86
Source: The authors (calculation based on the Annual Survey of Industry Data).
Notes: * Significant at 1% level; ** significant at 5% level; and *** significant at 10% level.
GVA, gross value added.
The results of the kinked exponential equation
(3) for the pre-reform period (1981–1990) are
given in Table 3. Considering the growth rate of
output and productivity, we have observed positive
and statistically significant results at 1 percent
level for most of the states. In the case of
employment growth rate, 9 out of 18 states have
shown statistically significant results. In the case
of decomposition of industrial output growth rate,
we have found that labor productivity has been the
major source of output growth rate for most of the
states. Among the 18 states, three states—
Maharashtra, Gujarat, and West Bengal—are
driven by labor productivity that leads to an
increase in output growth rate. Furthermore,
employment has played a significant role in output
growth rate for the state of Himachal Pradesh and
Jammu Kashmir. However, in Punjab, both
employment and productivity play an equal role in
the output growth rate.
The performance of industrial growth during
the post-reform period (1991–2007) is presented
in Table 4. In this period, 10 out of 18 states have
shown deteriorating growth of output as compared
with the previous period. The highest decline has
been seen in Bihar and Uttar Pradesh probably
because of the poor performance of labor
productivity. Despite the poor performance of
31
Produc- Productivity Employment
Driven Driven
(3) (4) (5)
1.07 4.50 3.566* 77.65 22.35
−4.068* 3.14 2.282* −247.49 347.50
2.79
0.56
labor productivity, industrial growth has played a
crucial role in the growth rate of output in most of
the states. In the states of Bihar and Kerala,
employment has played a crucial role in the growth
rate of output. The output growth of approximately
82.3 percent in Bihar and 57.8 percent in Kerala
are driven by employment, and the rest are
determined by labor productivity. Similarly, more
than 42 percent output growth rate in the states of
Tamil Nadu, Goa, and Jammu Kashmir are also
influenced by employment. For the recent period
(2008–2014), we have obtained interesting results
regarding the growth rate of the industrial sector.
The industrial growth in terms of output and
employment has increased in most of the states in
relation to the previous period (Table 5). However,
compared with the earlier period, most of the states
have reported that the growth rate of labor
productivity is gradually declining. The average
productivity growth rate is also lower than the
average rate of employment growth for all the
states. Only five states, that is, Tamil Nadu, Andhra
Pradesh, Kerala, Bihar, and Jammu Kashmir, have
reported an upward trend in the growth rate of
labor productivity (Table 5). While analyzing the
decomposition of industrial output growth, it is
found that employment is the primary contributor
to the growth rate of industrial output for the
32 Emerging Economy Studies 6(1)

majority of the states. The highest contribution of during the study period. However, it has been
employment in the growth rate of industrial output observed that employment growth has shown a
has been noted in Himachal Pradesh followed by higher degree of variation as compared with output
Maharashtra, Haryana, and Punjab. Furthermore, growth. Furthermore, during the post-reform period
it has been found that employment contribution is variation has been increased in both employment
negatively related to the growth rate of industrial and output growth as compared with the pre-reform
output in three states, namely, Uttar Pradesh, West period. However, during the post-financial crisis
Bengal, and Madhya Pradesh (Table 5). period, it has been observed that there is a
Both output and employment growth have convergence among the states and variation in
shown a large degree of variation across the states industrial performance has been reported less.
Table 4. Decomposition of Industrial Growth by the State from 1991 to 2007 (in %)
T Employ- Produc- T Productivity Employment
GVA Value ment T Value tivity Value Driven Driven
States (1) (2) (3) (4) (5)
1. Maharashtra 2.64 11.415* −0.05 −0.371 2.69 16.622* 101.8 −1.8
2. Gujarat 3.90 16.986* 0.57 3.968* 3.33 18.817* 85.3 14.7
3. Tamil Nadu 2.31 12.664* 1.03 6.901* 1.28 12.299* 55.4 44.6
4. Karnataka 3.82 18.547* 1.07 7.193* 2.75 19.099* 71.9 28.1
5. Haryana 4.02 20.928* 1.21 6.952* 2.80 14.592* 69.8 30.2
6. Uttar 1.28 4.379* −0.71 −4.163* 1.99 9.745* 155.4 −55.4
Pradesh
7. Rajasthan 2.62 9.734* 0.3 1.915*** 2.33 10.032* 88.6 11.4
8. Orissa 2.59 6.313* −0.43 −1.947 3.02 10.269* 116.7 −16.7
9. West Bengal 1.24 5.738* −1.16 −8.653* 2.40 14.9245 193.0 −93.0
10. Andhra 3.35 7.667* 0.71 2.257** 2.64 12.650* 78.8 21.2
Pradesh
11. Himachal 4.84 10.022* −0.19 −0.508 5.03 17.425* 103.9 −3.9
Pradesh
12. Madhya 0.46 1.306 −1.91 −6.836* 2.38 13.757* 512.0 −412.0
Pradesh
13. Punjab 1.73 7.385* 0.06 0.281 1.67 8.430* 96.7 3.3
14. Kerala 1.09 6.440* 0.63 4.071* 0.46 2.137** 42.2 57.8
15. Assam 1.84 4.554* 0.13 0.918 1.71 3.826* 92.7 7.3
16. Goa 5.93 19.584* 2.53 21.308* 3.41 12.998* 57.4 42.6
17. Bihar −6.9 −7.707* −5.68 −10.602* −1.22 −2.184* 17.7 82.3
18. Jammu & 4.38 5.567* 2.07 4.299* 2.31 3.789* 52.8 47.2
Kashmir
Mean 2.29 0.01 2.28
CV 1.19 1.69 0.57
Source: The authors (calculation based on the Annual Survey of Industry Data).
Notes: * Significant at 1% level; ** significant at 5% level; and *** significant at 10% level.
GVA, gross value added.
Kumar and Pattanaik 33

Table 5. Decomposition of Industrial Growth by the State from 2008 to 2014 (in %)

T Employ- T Produc- T Productivity Employment

GVA Value ment Value tivity Value Driven Driven

States (1) (2) (3) (4) (5)

1. Maharashtra 4.50 6.311* 2.76 6.898* 1.74 3.487* 38.64 61.36

2. Gujarat 4.00 5.629* 3.32 7.444* 0.67 1.230* 16.85 83.01

3. Tamil Nadu 5.62 9.978* 2.58 5.597* 3.04 9.461* 54.12 45.88

4. Karnataka 3.50 5.495* 2.69 5.833* 0.81 1.825*** 23.21 76.79

5. Haryana 4.01 6.766* 3.10 5.748* 0.91 1.535 22.71 77.29

6. Uttar 4.11 4.541* 2.92 5.550* 1.18 1.871*** 28.78 71.22

Pradesh

7. Rajasthan 5.95 7.149* 3.81 7.908* 2.14 2.987* 35.92 64.08

8. Orissa 7.09 5.604* 5.03 7.345* 2.06 2.272* 29.09 70.91

9. West Bengal 3.13 4.678* 1.73 4.203* 1.40 2.811* 44.59 55.41

10. Andhra 1.16 0.859 −2.56 −2.638* 3.72 5.778* 321.04 −221.04
Pradesh

11. Himachal 10.40 6.977* 10.06 8.815* 0.34 0.381 3.26 96.74
Pradesh

12. Madhya 4.18 3.811* 2.79 3.232* 1.39 2.604** 33.22 66.78
Pradesh

13. Punjab 4.04 5.583* 2.99 4.798* 1.05 1.709*** 25.94 74.06

14. Kerala 3.75 7.165* 0.64 1.338 3.11 4.672* 82.92 17.08

15. Assam 3.73 2.992* 2.60 5.758* 1.14 0.825 30.45 69.55

16. Goa 3.56 3.800* 2.38 6.495* 1.18 1.453 33.08 66.92

17. Bihar 11.95 4.323* 6.88 4.161* 5.07 2.937* 42.40 57.60

18. Jammu & 11.06 4.552* 3.99 2.688** 7.07 3.751* 63.92 36.08
Kashmir

Mean 5.32 3.21 2.11

CV 0.56 0.79 0.82

Source: The authors (calculation based on the Annual Survey of Industry Data).
Notes: * Significant at 1% level, ** significant at 5% level and *** significant at 10% level.
GVA, gross value added.
34 Emerging Economy Studies 6(1)

Figure 1. State-wise Change in the Distribution of Output and Employment: 1981–2014 (in %)
Source: Based on Table 5.
Table 6. State-wise Distribution of Output and Employment (in %)

Output Employment
1980– 1990– 2000– 2013– 1980– 1990– 2000– 2013–
States 1981 Rank 1991 Rank 2001 Rank 2014 Rank 1981 Rank 1991 Rank 2001 Rank 2014 Rank
1. Maharashtra 23.90 1 22.82 1 22.74 1 24.74 1 17.71 1 15.58 1 15.83 1 16.33 2
2. Gujarat 9.74 4 8.87 4 13.88 2 16.83 2 9.33 5 8.54 6 10.15 5 11.88 3
3. Tamil Nadu 10.10 3 11.07 2 12.23 3 11.56 3 10.58 3 12.11 2 15.34 2 17.72 1
4. Karnataka 5.12 7 5.34 8 6.16 6 7.32 4 5.25 7 5.27 7 6.40 7 8.03 4
5. Haryana 4.10 11 4.32 10 5.98 7 6.74 5 2.45 13 3.19 12 4.06 10 5.30 7
6. Uttar 6.08 5 9.29 3 7.49 4 6.58 6 10.18 4 9.95 4 7.29 6 7.90 5
Pradesh
7. Rajasthan 2.86 13 3.12 13 3.90 10 3.54 7 2.53 12 3.04 13 3.13 12 4.07 10
8. Orissa 1.90 14 2.41 14 1.86 13 3.18 8 1.75 14 1.92 14 1.74 13 2.26 13
9. West Bengal 10.82 2 5.92 7 4.29 9 3.01 9 12.52 2 9.26 5 7.69 5 5.59 6
10. Andhra 5.01 9 6.20 5 6.69 5 2.93 10 9.01 6 10.49 3 12.24 2 4.52 9
Pradesh
11. Himachal 0.54 16 0.70 16 0.93 16 2.85 11 0.29 17 0.67 16 0.53 16 1.68 14
Pradesh
12. Madhya 5.06 8 6.13 6 4.48 8 2.77 12 4.28 9 5.22 8 3.42 11 2.79 12
Pradesh
13. Punjab 3.38 12 3.68 11 3.17 12 2.58 13 3.21 11 5.10 9 4.84 8 5.52 8
14. Kerala 4.46 10 3.15 12 3.52 11 2.31 14 3.68 10 3.40 11 4.23 9 3.04 11
15. Assam 1.02 15 1.39 15 0.97 15 1.0 15 1.63 15 1.36 15 1.52 14 1.61 15
16. Goa 0.53 17 0.31 17 1.04 14 0.91 16 0.20 18 0.22 17 0.42 17 0.49 18
17. Bihar 5.20 6 5.17 9 0.54 17 0.63 17 5.02 8 4.51 10 0.85 15 0.98 16
18. Jammu & 0.19 18 0.14 18 0.12 18 0.50 18 0.37 16 0.17 18 0.31 18 0.58 17
Kashmir
Source: The authors (calculation based on the Annual Survey of Industry Data).
36 Emerging Economy Studies 6(1)
Distribution in the Share of Output and
Employment of Industrial Sector by State
This section presents the state-wise share of
industrial output and employment from 1980–
1981 to 2013–2014. For nearly three decades,
three states, namely, Maharashtra, Gujarat, and
Tamil Nadu, have been on the top of the industrial
map. During the pre-reform period, the contribution
of these states has been more than 42 percent of
the total output of the industrial sector (Table 6).
The contribution of these states has increased to
53.13 percent in the post-reform period, thus
showing the domination of the industrial activities
in these states. Over the last 34 years, the output
share of Gujarat has increased by 7.04 percent as
compared with 1.46 and 0.84 percent of Tamil
Nadu and Maharashtra, respectively (Figure 1).
With the passage of time, industrial
concentrations have also spread in other states
such as Karnataka, Haryana, and Himachal
Pradesh (Table 6). In the pre-reform period, the
output contributions in Karnataka, Haryana, and
Himachal Pradesh have been very low, and they
have occupied 4th, 5th, and 16th positions,
respectively. The rankings of Karnataka, Haryana,
and Himachal Pradesh have improved to 4th, 5th,
and 11th, respectively, during the post-reform
period. The highest changes in output share of
Himachal Pradesh have been noted between 2000–
2001 and 2013–2014 (Table 6) probably owing to
the impact of state-level industrial policy and the
Central special packages. The ranking of Uttar
Pradesh is more or less same over the period.
Rajasthan and Orissa have also shown improvement
in their rankings, particularly, between 2000–2001
and 2013–2014 (Table 6).
Furthermore, it has been observed that there is a
declining trend in the pattern of output contribution
in 7 out of 18 states during the study period. These
states are West Bengal, Andhra Pradesh, Madhya
Pradesh, Punjab, Kerala, Assam, and Bihar. The
highest decline has been noted for West Bengal
and Bihar, though these states have occupied at the
top of the industrial ranking in the pre-reform
period. With regard to the employment, almost
similar trends have been observed with small
variations over the period. In the pre-reform
period, Maharashtra has a higher contribution in
the total employment followed by West Bengal
and Tamil Nadu. The combined shares of these
states were about 40.81 percent of the total
industrial employment. The lowest contribution
toward employment has been made by Goa, which
is followed by Himachal Pradesh, Jammu Kashmir,
and Assam (Table 6).
However, during the post-reform period, the
situation of employment share in most of the state
has changed, particularly after 2000–2001. Tamil
Nadu has gradually become the highest
employment generating state with 17.73 percent
contribution in total employment, followed by
Maharashtra and Gujarat (Table 6). However, Goa
and Jammu Kashmir have shown the lowest
employment share during the period. Furthermore,
a declining trend has been observed in the pattern
of employment in eight major states in India,
which are Maharashtra, Uttar Pradesh, West
Bengal, Andhra Pradesh, Madhya Pradesh, Kerala,
Assam, and Bihar. The highest decline has been
noted in West Bengal (6.93 percent), which is
followed by Bihar (4.04 percent), Uttar Pradesh
(2.28 percent), Madhya Pradesh (1.49 percent),
and Maharashtra (1.38 percent). The rest of the
states have shown an increasing trend in the pattern
of employment during the period.
Conclusion
The findings of the study suggest that there is a
weak relationship between employment and output
of the industrial sector for most of the states during
the study period. This suggests that with 1 percent
point change in the output of industrial sector,
employment has grown at the lesser rate. Between
the pre-reform and post-reform periods, the study
has noted the differences in the pattern of
Kumar and Pattanaik
employment intensity of industrial growth in the
selected states. During the pre-reform period,
employment intensity has been the highest in
Himachal Pradesh, followed by Punjab and
Haryana. Himachal Pradesh has achieved the
highest employment intensity because of negative
productivity growth rate. Punjab has shown almost
equal employment and productivity-driven
industrial growth. The most industrialized state is
Maharashtra, which has been observed as the
lowest employment generation state owing to
higher productivity growth rate. It has shown a
negative employment growth rate despite
reasonable growth in output.
The study has also noted reasonable
improvement in the employment intensity of
industrial growth for most states during 2008–
2014 as compared with 1991–2007. Interestingly,
the two states, namely, Himachal Pradesh and
Orissa, have performed exceptionally well in
employment generation during this period.
Besides, the industrially developed states such as
Maharashtra, Gujarat, and Karnataka have also
successfully generated more employment with
respect to industrial output. With regard to the
dominance of industrial activities, the three states,
namely, Maharashtra, Gujarat, and Tamil Nadu,
are still dominating the industrial activities in
India. During the period, the industrial
concentrations are further spread in other states
such as Karnataka, Haryana, and Himachal
Pradesh. Therefore, in order to boost the industrial
sector, the states lagging in industrial development
should give more emphasis on infrastructural
facilities, ease of doing business, tax exemption,
and relaxation in land allotment laws. Moreover,
the level of employment can be increased by
developing labor-intensive industries, technical
literacy, and relaxation in labor laws.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest
with respect to the research, authorship, and/or
publication of this article.
37
Funding
The authors received no financial support for the
research, authorship, and/or publication of this article.
References
Ajilore, T., & Yinusa, O. (2011). An analysis of
employment intensity of sectoral output growth in
Botswana. Southern African Business Review, 15(2),
26–42.
Ali, A. K. (2007). The response of employment
to GDP growth in Turkey: An econometric
estimation. Applied Econometrics and International
Development, 7(1), 65–74.
Awasthi, D. N. (2000). Recent changes in Gujarat
industry: Issues and evidence. Economic & Political
Weekly, 35(35/36), 3183–3192.
Bhattacharya, A., & Bijapurkar, A. (2017). India:
Growth and jobs in the new globalization (Rep.).
The Boston Consulting Group. Retrieved from
https://media-publications.bcg.com/BCG-CII-
India-Future-of-Jobs-Mar-2017.pdf
Bhattacharya, B. B., & Sakthivel, S. (2004). Regional
growth and disparity in India: Comparison of pre-
and post-reform decades. Economic & Political
Weekly, 39(10), 1071–1077.
Boyce, J. K. (1986). Kinked exponential models
for growth rate estimation. Oxford Bulletin of
Economics and Statistics, 48(4), 385–391.
Crivelli, E., Furceri, D., & Bernate, J. T. (2012). Can
policies affect employment intensity of growth?
A cross-country analysis (Working Paper No.
218). Washington, DC: International Monetary
Fund. Retrieved from https://www.imf.org/en/
Publications/WP/Issues/2016/12/31/Can-Policies-
Affect-Employment-Intensity-of-Growth-A-Cross-
Country-Analysis-26230
Das, P. (2007). Economic reform, output and
employment growth in manufacturing: Testing
Kaldor’s hypotheses. Economic & Political Weekly,
42(39), 3978–3985.
Das, P., & Sengupta, A. (2015). Wages, productivity and
employment in Indian manufacturing industries:
1998-2010. The Journal of Industrial Statistics,
4(2), 208–220.
Dopke, J. (2001). The “Employment Intensity” of
growth in Europe (Working Paper No. 1011). Kiel:
Kiel Institute of World Economics. Retrieved from
38 Emerging Economy Studies 6(1)
http://citeseerx.ist.psu.edu/viewdoc/download?doi=
10.1.1.570.8411&rep=rep1&type=pdf
Ehwany, N. E., & Megharbel, N. E. (2009). Employment
intensity of growth in Egypt with a focus on
manufacturing industries (Working paper No. 130).
ECES. Retrieved from http://www.eces.org.eg/cms/
NewsUploads/Pdf/2019_1_13-18_15_314.pdf
Goldar, B. (1987). Employment growth in Indian
industry. Indian Journal of Industrial Relations,
22(3), 271–285.
Goldar, B. (2000). Employment growth in organised
manufacturing in India. Economic and Political
Weekly, 35(14), 1191–1195.
Goldar, B. (2011). Growth in organised manufacturing
employment in recent years. Economic & Political
Weekly, 46(7), 20–23.
Goldar, B., & Seth, V. (1989). Spatial variations in
the rate of industrial growth in India. Economic &
Political Weekly, 24(22), 1237–1240.
Islam, I., & Nazara, S. (2000). Estimating employment
elasticity for the Indonesian economy (Technical Note
on the Indonesian Labour Market). Retrieved from
http://www.ilo.org/jakarta/whatwedo/publications/
WCMS_123743/lang--en/index.htm
Jain, H. (2017). Contractualization and wage differences:
Evidence from organized manufacturing industries
in India. The Indian Journal of Labour Economics,
60(3), 461–479.
Kannan, K. P., & Raveendran, G. (2009). Growth sans
employment: A quarter century of jobless growth
in India’s organised manufacturing. Economic &
Political Weekly, 44(10), 80–91.
Kapsos, S. (2005). The employment intensity of
growth: Trends and macroeconomic determinants
(Employment Strategy Papers No. 12).
Retrieved from http://www.ilo.org/empelm/pubs/
WCMS_143163/lang--en/index.htm
Kumar, S., & Pattanaik, F. (2017). Growth and structure
of industrial sector in Himachal Pradesh. Journal of
Regional Development and Planning, 6(1), 33–44.
Leshoro, T. L. (2014). Empirical analysis of employment
elasticity of growth in Botswana. Mediterranean
Journal of Social Sciences, 5(2), 171–179. Retrieved
from http://www.mcser.org/journal/index.php/mjss/
article/view/1973/1972
Lim, D. (1976). On estimating the employment-output
elasticity for Malaysian manufacturing. The Journal
of Developing Areas, 10(3), 305–316. Retrieved
from https://www.jstor.org/stable/4190378
Mazumdar, D. (2003). Trends in employment and the
employment elasticity in manufacturing, 1971–92:
An international comparison. Cambridge Journal of
Economics, 27(4), 563–582.
Mazumdar, D., & Sarkar, S. (2004). Reforms and
employment elasticity in organised manufacturing.
Economic & Political Weekly, 39(27), 55–64.
Misra, S., & Suresh, A. K. (2014). Estimating
employment elasticity of growth for the Indian
economy (Working Paper No. 06). Retrieved from
https://www.rbi.org.in/SCRIPTs/PublicationsView.
aspx?id=15763
Okun, A. (1962). Potential GNP: Its measurement and
significance. In American Statistical Association:
Proceedings of the Business and Economic Statistics
Section, 98–104.
Pattanaik, F., & Nayak, N. C. (2013a). Macroeconomic
determinants of employment intensity of growth in
India. Margin: The Journal of Applied Economic
Research, 8(2), 137–154.
Pattanaik, F., & Nayak, N. C. (2013b). Trends and
forecasting of employment intensity of growth in
India. Journal of the Asia Pacific Economy, 18(3),
438–459.
Sassi, S., & Goaied, M. (2016). Long-term employment
intensity of sectoral output growth in Tunisia.
International Labour Review, 155(2), 253–263.
Sen, K., & Das, D. K. (2015). Where have all the workers
gone? The puzzle of declining labour intensity in
organized Indian manufacturing. Economic and
Political Weekly, 50(23), 108–115.
Seyfried, W. (2007/2008). A cross-country analysis
of the employment intensity of economic growth.
Southwest Business and Economics Journal, 16(1),
51–61. Retrieved from http://www.cameron.edu/
uploads/lJ/kZ/lJkZvb4C1vr8gUVAaX-Ygg/Vol-16-
A-Cross-Country-Analysis-Of-The-Employment.
pdf
Sharma, A. (2017). Inter-state analysis of manufacturing
performance in India: 2001–02 to 2013–14. The Indian
Journal of Industrial Relations, 52(4), 570–584.
Trivedi, P. (2004). An inter-state perspective on
manufacturing productivity in India: 1980–81 to
2000–01. Indian Economic Review, 39(1), 203–237.