Export Participation and Employment of Contract Workers in Organized Manufacturing Plants in India

The share of contract workers, i.e., the workers employed through contractors, as against the workers directly employed by factories, out of all workers employed in India’s organized manufacturing has increased significantly over the last three decades, reaching 38.6% in 2019–2020. Using plant-level panel data for the years 2008–2009 to 2017–2018, the paper examines econometrically whether export participation by the organized sector manufacturing plants in India induced them to hire contract workers. The empirical results indicate that the export market participation by manufacturing plants tends to raise their probability of employing contract workers. This effect of export participation on the probability of employing contract workers is found for plants in the medium-low and low-technology industries, and the impact is bigger in the medium-high and high-technology industries. The effect is found to be relatively stronger for bigger plants than small-sized plants. In high-technology industries, in-house firm-specific skill formation is important for firms for their being able to export their products, and, hence, in many technology-oriented plants of these industries export participation should not induce them to employ contract workers. Some support for this hypothesis is found in the empirical results obtained in the study.