Author: Ritabrata Bose and K.V. Ramaswamy
Title: Globalization and Workforce Composition in Indian Formal Manufacturing: New evidence on product market competition channel
Abstract: A variety of mechanisms linking globalization and margins of adjustments in the labour markets have been empirically tested in recent years. How globalization could affect workforce composition of industries and thereby the quality of jobs, a key labour market indicator is much less studied and the econometric evidence is sparse. This study contributes to filling the gap by studying India’s formal manufacturing sector that experienced deep trade and industrial reforms since the 1990s. Industrylevel panel data are analysed to establish the indirect link between product market structure (concentration) and workforce composition of firms (usage of contract workers). We explicitly measure changes in market concentration using a newly constructed trade-adjusted concentration ratio, profitability (price-cost mark-up) and workforce composition (usage of contract workers) to show how the effect of globalization is mediated indirectly through the product market structure. Our sample includes 46 three-digit formal manufacturing industries spanning from 1998 to 2014. The findings provide significant evidence that Indian manufacturing firms responded to globalization by hiring relatively more contract workers a key margin of labour market flexibility. This finding underlines the importance of understanding the indirect ways in which globalization could affect labour market conditions and workers welfare in developing countries.
Keywords: market concentration, price cost mark-up, contract labour, globalisation
JEL Code: D22, F60, F66, F16, D22 and L16