The productivity-wage and productivity-employment nexus : a panel data analysis of Indian manufacturing

This article investigates the long-run relationship between labour productivity and employment, and between labour productivity and real wages in the case of the Indian manufacturing sector. The panel data set consists of 17 two-digit manufacturing industries for the period 1973–1974 to 1999–2001. We find that productivity-wages and productivity-employment are panel cointegrated for all industries. We find that both employment and real wages exert a positive effect on labour productivity. We argue that flexible labour market has a significant influence on manufacturing productivity, employment and real wages in the case of Indian manufacturing.