Parallel Session IARIW 2014

1. “Labour quality in market services in India:
challenges in constructing a quality index”
Suresh Aggarwal and Deb Das
Comment
Nicholas Oulton
LSE
33rd General Conference of the IARIW, Rotterdam, 24-
30th August 2014

2. SUMMARY
• They apply the method of Griliches and Jorgenson
(1967) to measure labour quality in India.
• Period covered: 1983-2011.
• 3 broad sectors: Agriculture, Industry and Services.
• Services further broken down into market services and
non-market services.
• Market services further broken down into 5 sub-
sectors.
• Over-arching assumption: wage rates for each type of
labour are proportional to marginal productivity.
2

3. Empirical specification: types of labour
3
Classification No. Categories
Gender 2 Males, Females
Age groups 3 <29, 29-50, >50
Education 5 Below Primary, Primary, Middle, Secondary and
Higher Secondary ,
above Higher Secondary
Sectors 10 agriculture, secondary sector, and tertiary sector
[market services (Trade, Hotels and Restaurants ,
Transport and Storage, Post and Telecommunication,
Financial Services) and non-market services]

4. Data sources
• Number of workers and wages in each category
from 7 rounds of the Employment and
Unemployment Survey conducted by NSSO.
• Problem: wage rates often missing, so had to be
estimated from predicted values generated by a
Mincer-type regression of wages on worker
characteristics. Wage rates usually missing for the
self-employed (50% of workforce).
• Data on hours worked not reliable so numbers
employed used instead.
4

5. Labour quality in broad sectors
5
100.00
105.00
110.00
115.00
120.00
125.00
130.00
135.00
140.00 1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
QualityIndex
Agriculture
Secondary sector
Tertiary Sector
Total Economy

6. Proportion of workers with less than primary
education, by sector (%)
Source: Aggarwal and Das (2014), Appendix Table 3.
6
Sector 1983 2011
Agriculture 79.6 54.4
Manufacturing 56.0 34.5
Services 39.9 20.2
Whole economy 69.7 41.6

7. 7
1983
to
2011
1983
to
1990
1991
to
2000
2001
to
2011
Labour
Quality
1.14 1.02 1.00 1.33
First order Quality Indices
Qs (Gender) 0.08 0.05 0.05 0.14
Qa (Age) 0.11 0.09 0.08 0.16
Qe
(Education)
1.01 0.91 0.92 1.17

8. Relative labour productivity in India
(whole economy = 100)
8
Sector 1985 1995 2005
Agriculture 46.8 41.5 33.6
Industry 180.1 184.2 154.9
Services 231.0 211.5 205.0
Source: Aggarwal and Das (2014), Table 1 and own calculations.
Relative labour productivity: value added share ÷ employment share.

9. COMMENTS
• Labour quality seems to have been growing quite
rapidly in India. In rich countries the growth rate is
typically 0.5% p.a. In India it is over 1% p.a. Of course
this is from a low base.
• Some of the overall growth seems to have been due to
composition effects: the shift of employment towards
services where quality is relatively high. It would be
helpful if some of the tables for growth rates were
modified to show levels, e.g. Table 7.
• Agriculture, 56% of total employment in 2005, is a
seriously lagging sector.
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