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How Labour Market Institutions Matter Wages and Wage Share in India during the Post-Reform Period

This paper analyses the trends in wages and the wage share in various sectors of the Indian economy, particularly organised manufacturing, during the postreform period. The results of empirical analysis indicate that in manufacturing, the productivity-enhancing effects of trade liberalisation prevailed over the downward pressure on wages caused by rent erosion. It is found that there was an upward trend in the wage gap between skilled and unskilled labour in manufacturing, though this did not occur in certain components of the other major sectors. A downward trend in the wage share in value added is observed for most sectors of the Indian economy and for most industries constituting the manufacturing sector. This may be attributed to the reduced bargaining power of trade unions, increasing capital intensity of production, and labour-saving technical change, among other factors. An econometric analysis of the wage share indicates that increases in export intensity tend to depress the wage share.

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