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


  • Nitin Gupta



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.

Suggested Citation

  • Nitin Gupta, 2012. "Impact of Elasticities of Substitution, Technical Change, and Labour Regulations on Labour Welfare in Indian Industries," ASARC Working Papers 2012-10, The Australian National University, Australia South Asia Research Centre.
  • Handle: RePEc:pas:asarcc:2012-10

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    References listed on IDEAS

    1. Jin, Hui & Jorgenson, Dale W., 2010. "Econometric modeling of technical change," Journal of Econometrics, Elsevier, vol. 157(2), pages 205-219, August.
    2. 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.
    3. 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.
    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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    More about this item


    Labour force & employment; labour policy; manufacturing; production structure; technological change;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J78 - Labor and Demographic Economics - - Labor Discrimination - - - Public Policy (including comparable worth)
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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