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Impact of Elasticities of Substitution, Technical Change, and Labour Regulations on Labour Welfare in Indian Industries

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  • Nitin Gupta


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    This paper primarily investigates the issue of labour welfare in Indian industries, and seeks to make a contribution to the debate on labour reforms currently underway in India. It investigates the relative importance of technical change, elasticities of substitution, and labour regulations for labour welfare, proxied by the income shares of skilled and unskilled labour in total costs. Three primary conclusions arise. First, pure technical change has no discernible impact on income shares. Second, there is a clear pattern between the magnitudes of and changes in elasticities of substitution and associated incomes shares. Elasticity changes have tended to favour skilled labour and hurt unskilled labour. Finally, pro-worker labour regulations have a somewhat positive impact on unskilled labour shares, by mitigating the negative impact of substitution elasticities, but not completely reversing them. Pro-employer regulations, by contrast, do not have a good record of safeguarding labour interests. Based on these conclusions, the paper makes the case that a clear articulation of the goals for labour reforms should precede their designing.

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    Paper provided by The Australian National University, Australia South Asia Research Centre in its series ASARC Working Papers with number 2012-10.

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    Length: 32
    Date of creation: 2012
    Handle: RePEc:pas:asarcc:2012-10
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    1. Miguel A. León-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-1357, September.
    2. Jin, Hui & Jorgenson, Dale W., 2010. "Econometric modeling of technical change," Journal of Econometrics, Elsevier, vol. 157(2), pages 205-219, August.
    3. Kymn, Kern O & Hisnanick, John J, 2001. "The CES-Translag Production Function, Returns to Scale and AES," Bulletin of Economic Research, Wiley Blackwell, vol. 53(3), pages 207-214, July.
    4. Jha, Raghbendra & Murty, M. N. & Paul, Satya & Sahni, Balbir S., 1991. "Cost structure of India's iron and steel industry : Allocative efficiency, economies of scale and biased technical progress," Resources Policy, Elsevier, vol. 17(1), pages 22-30, March.
    5. V. Eldon Ball & Robert G. Chambers, 1982. "An Economic Analysis of Technology in the Meat Products Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(4), pages 699-709.
    6. Dupuy Arnaud, 2006. "Hicks Neutral Technical Change Revisited: CES Production Function and Information of General Order," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-26, August.
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