UNORGANIZED SECTOR IN INDIA: EMPLOYMENT ELASTICITY AND WAGE-PRODUCTIVITY NEXUS

In India the formal, or organized, sector is not able to generate employment opportunities for the unskilled or semi-skilled workers on a large scale, forcing them to get residually absorbed in the unorganized sector. At the same time, the unorganized sector is believed to have work consignments from the organized sector and this ancillarization process is contributing to employment creation. In the backdrop of these views the present study, using the unit level data of the National Sample Survey (NSS, 2010-11), makes an attempt to estimate the employment elasticity and wage-productivity nexus in the unorganized sector. Although the employment function estimated in the paper suggests employment can be raised through wage reduction, it can affect the wellbeing of the workers because the wage rate in the unorganized sector is already very low. Further, subcontracting or ancillarization does not seem to be contributing to employment generation in unorganized manufacturing or trade related activities. However, in the services sector it shows a positive impact. The equation representing determinants of wages shows units with assets are better-off compared to those that do not have them. This has an important policy implication, suggesting that through asset creation, government may bring in improvements in livelihood of the unorganized sector enterprises.