Export Participation and Employment of Contract Workers in Organized Manufacturing Plants in India

The share of contract workers, i.e., the workers employed through contractors, as against the workers directly employed by factories, out of all workers employed in India’s organized manufacturing has increased significantly over the last three decades, from 14 per cent in 1989-90 to 38 per cent in 2018-19. An explanation for this trend probably lies in certain advantages of cost reduction and flexibility in managing the workforce that industrial firms may get by employing contract workers. Yet, about 70 per cent of the manufacturing plants in India, and about 30 per cent of the relatively bigger plants employing over 300 workers, are not employing any contract workers. Using plant-level panel data for the years 2008-09 to 2015-16, the paper examines econometrically the impact of export participation by the organized sector manufacturing plants in India on their decision on hiring contract workers. The empirical results indicate that the export market participation by a manufacturing plant tends to raise its probability of employing contract workers. This positive effect of export participation on the probability of employing contract workers is found for the plants in the low-technology industries as well as for the plants in the medium- and high-technology industries. For the plants belonging to the high-technology industries, there are grounds to believe that, in many cases, export participation would not sufficiently induce them to employ contract workers because, for them, in-house firm-specific skill formation is important for being able to export, which requires that most of the employed workers be on a regular/ permanent basis rather than on a short-term basis through an arrangement with a contractor. This hypothesis, however, does not find support from the empirical results obtained in the study