This paper documents that despite relatively robust output growth, India has experienced a marked and puzzling slowdown in labour productivity over the last decade. This we argue, is partly because of a intensification in dualism. While employment rates have risen, across most kinds of occupations, there is a proportionately greater shift toward self-employment and informal activities (especially among women), which are lower productivity sectors. Overall we document a sustained reversal in labour reallocation toward lower-productivity sectors, especially towards agriculture. We show that this pattern is unusual in international perspective. Sectoral, household, and gender-based evidence indicates that rising per capita incomes have been sustained through labour intensification despite stagnant or declining earnings per worker. An additional and puzzling fact is that there has been a decline in labour productivity growth even in larger firms. Taken together, the findings point to an intensification of dualism-with some growth in formal higher value added activity being offset by much larger growth in activity in lower value added sectors.

Authors:

Amit Basole & Arjun Jayadev