Wednesday, March 23, 2011

India, Liberalization and Real Wages

VoxEU has a report arguing that liberalization has increased the productivity of industries in India:

  • First, from 1985 to 1990, average productivity rose by over 8%, while the reallocation component actually fell by more than 6%, indicating that more productive firms lost market share to less productive firms.
  • Starting in 1991, this trend was reversed: average productivity fell, while reallocation productivity rose sharply.
  • By 1998, however, average productivity improvements were once again the more important driver of aggregate productivity growth. Reallocation productivity remained at approximately the level it achieved between 1992 and 1993, but rose no further.
The paper concludes that:
"Our results lend support to the importance of market-share reallocations in productivity growth. In the case of India, however, we show that such reallocations were only important at the beginning of the major trade liberalisation period, and that over the 20-year period from 1985 to 2004, average productivity improvements played a larger role in determining aggregate productivity growth."
What the paper fails to confront is the real wage:
"However, in reality, there has not been any significant acceleration in the growth of real wages in organised manufacturing in India in the post-reform periods. Rather, the growth rate of real wages in the 1990s has been lower than that in the 1980s (Goldar, 2000, 2002; Tendulkar, 2000)." - Bishwanath Goldar
Even if productivity expanded in the aggregate more so after trade liberalization, it also ceased to translate into greater compensation for those whose productivity was raised.

No comments:

Post a Comment

Comments are appreciated. Offensive comments and spam will be removed.