Citation:

Dr. Rajesh Shetgaokar "Wage Dynamics Under Structural Transformation: Evidence From India’s Organised Manufacturing Sector" International Research Journal of Economics and Management Studies, Vol. 5, No. 10, pp. 25-34, 2026. Crossref. https://doi.org/10.56472/25835238/IRJEMS-V5I10P104

Abstract:

This study analyses wage dynamics in India’s organised manufacturing sector in the context of ongoing structural transformation and changing labour market conditions. Using a panel dataset constructed from the Annual Survey of Industries for the period 1993–94 to 2023–24, the study examines how productivity, capital deepening, labour flexibility, and firm characteristics shape wage behaviour. A panel data framework is employed using fixed effects and dynamic GMM estimation to control for unobserved heterogeneity and potential endogeneity. The results demonstrate that both labor productivity and capital intensity are positively correlated with wages and therefore represent contributing factors to higher wages; however, contract labor intensity was negatively correlated with wages and thus represents a factor that would tend to suppress wages. This negative relationship between contract labor intensity and wages indicates that as the reliance on flexible employment relationships grows so does the tendency for wages to be suppressed. Furthermore, there appears to be a segmented labor market in the organized sector. Contract labor intensity is indicative of the existence of a segmented labor market, where employees in the organized sector are split into two groups based upon whether they are permanent or temporary. Contract labor is generally more common among temporary workers. Firm size and industry concentration were both positively correlated with wages. On the other hand, labor intensity was negatively correlated with wages. This suggests that structural variations exist among industries. Finally, the results suggest that there exists wage inequality within the sector. The study adds value to the literature by combining structural and labor market variables into a single empirical model. Additionally, this study provides long-term panel data for India. Overall, the results indicate that although structural transformation promotes wage increases through increases in productivity and capital deepness, the growth of contract labor represents a threat to achieving equitable wage outcomes. These findings have important policy implications for promoting inclusive industrial growth and improving labour market conditions in India.

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Keywords:

Labour Flexibility, Organised Manufacturing, Panel Data, Structural Transformation, Wage Dynamics.