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Determinants of Employment Potential in India’s Service Sector: The Post-reform Experience

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Abstract

Service sector in India has grown rapidly in the last one and a half decades. Its growth has been higher than the growth in other commodity-producing sectors such as agriculture and manufacturing sectors. If service sector becomes the leads the growth process, the pertinent questions are what is its potential to generate employment? Can we assume it as the emerging sector to accommodate the surplus labour? In other words, the present paper examines the employment dynamics in both organised and unorganised service sectors by empirically estimates the effects of macro-economic variables by using the data from 1972–1973 to 2011–2012. Considering the Keynesian theoretical explanation about the change in employment which depends on expected output or change in output, the empirical estimations corroborate the view that performance of service sector determines the capacity to generate employment in the sector where employment in organised services is positively influenced by non-services output, lagged output of services, human capital and net export and negatively associated with labour productivity, whereas employment in unorganised services is positively determined by non-services output and lag services output, but negatively influenced by productivity, technology and human capital.

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Fig. 1

Source: Income and employment data are computed from Central Statistical Office and NSSO, respectively

Fig. 2

Source: Same as for Fig. 1

Fig. 3

Source: Same as for Fig. 1

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Authors and Affiliations

  1. Department of Humanities and Social Sciences, National Institute of Technology Patna, Ashok Rajpath, Patna, Bihar, 800 005, India

    Deepak Kumar Behera

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  1. Deepak Kumar Behera
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Correspondence to Deepak Kumar Behera.

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Appendix: Stationarity Test for the Variables Used in the Estimation for Service Sector

Appendix: Stationarity Test for the Variables Used in the Estimation for Service Sector

Results of the DF/ADF unit root tests for the series.

Variables name

Levels

First differences

E OI

− 2.562652

− 7.927085

E UI

0.023711

− 2.625844

Y OI( t−1)

1.965759

− 4.404409

Y UI( t−1)

4.034526

− 4.065087

NSYorg

1.504232

− 3.453212

NSYunorg

1.028857

− 9.568127

LPOI

4.487201

− 3.669124

LPUI

2.710741

− 3.999500

GCFPUB

0.660428

− 4.900742

GCFPVT

0.991045

− 5.841917

(K/L)OI

2.122191

− 3.518582

(K/L)UI

1.865887

− 4.348278

NINVEXP

0.097766

− 8.481841

PFCE

6.174295

− 2.876578

HC

0.477180

− 3.138324

Critical values at 10% (− 2.614300)***, 5% (− 2.951125)** and 1% (− 3.639407)* significance level.

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Behera, D.K. Determinants of Employment Potential in India’s Service Sector: The Post-reform Experience. Ind. J. Labour Econ. 61, 639–657 (2018). https://doi.org/10.1007/s41027-019-0152-9

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