Employment Elasticity in India's Organised Manufacturing Sector: Evidence from State-level Panel Data

The Indian manufacturing sector is considered one of the main drivers of employment creation and has shifted the labour force from agriculture to a more productive manufacturing industry. However, the sector has experienced significant economic reforms that have affected its employment generation capacity. This study aims to quantify the employment elasticity trend in India’s organised manufacturing sector post-economic reform and determine the relative impact of wages, fixed capital and working capital on employment generation across different periods. The study employs panel data analysis using data from twenty-one major Indian states, covering the period from 1998 to 2023. The random effect model is utilised to estimate the employment elasticity coefficient. The analysis incorporates sub-period estimation to capture structural breaks following major economic reforms. The findings reveal that working capital positively impacts employment growth in the sector. However, this effect varies across different time horizons. The study suggests that adequate availability of working capital in the industry could substantially boost employment. JEL Classification - C23, J20, L60