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Human Capital, Labour Productivity and Employment

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Human Capital and Development

Abstract

This chapter analyses the importance of human capital in determining the interstate differences in labour productivity and its growth in India. The chapter also examines the impact of human capital differences on the growth of employment for a cross section of Indian states for the period 2003–2007. It argues that the current technology is human capital and knowledge intensive and cannot be used in the absence of skill development. Due to the presence of skill bias in the new technology, persons with less education would become victims. The panel model results of generalised least squares using cross-sectional weights show that after controlling for other determinants, variables representing human capital emerge significant determinants of productivity. Furthermore, higher enrolments in high schools contribute not only to higher labour productivity but also to higher growth in productivity. In addition, states that have higher high school enrolment rates have been enjoying higher growth rates of employment. On the whole, the results presented show strong skill bias in productivity and employment growths across states.

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Notes

  1. 1.

    If Y  =  income of the state, POP  =  total population of the state, and LAB  =  workforce of the state, then one can write Y/POP  =  Y/LAB  ×  LAB/POP where Y/POP is per capita income; Y/LAB is labour productivity and LAB/POP is proportion of workers in total population.

  2. 2.

    Following standard practice (Kokko et al. 1996; Buckley et al. 2002; Liu 2008), one can also derive Eq (2.ii) using standard production function.

  3. 3.

    For simplicity, the subscripts representing cross section and time for each of the variables have been dropped. We have used EViews7 software for estimation. We have assumed the presence of cross-sectional heteroscedasticity, and, hence, the econometric models have been estimated using feasible generalised least squares (FGLS) procedure allowing for cross-sectional fixed effects with cross-sectional weights.

  4. 4.

    Value of exports was available in the data source only for the years 2003, 2006 and 2007. Hence, first, the ratio of exports to gross state domestic product was calculated, and then the ratio was interpolated for the years 2004 and 2005 by considering a linear trend between 2003 and 2006.

  5. 5.

    Labour productivity (definition 1) at constant prices has been calculated by deflating the net value added by the wholesale price index after shifting the index base to the year 2002–2003. Fixed capital has been calculated at constant prices using the perpetual inventory method (Liu 2008).

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Acknowledgement

We are grateful to Saumitra Bhaduri, K. S. Kavi Kumar, K. R. Shanmugam and Brinda Viswanathan for several helpful comments and suggestions.

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Authors and Affiliations

  1. Amrita School of Business, Bangalore, India

    Savita Bhat

  2. Madras School of Economics, Chennai, India

    N. S. Siddharthan

Authors
  1. Savita Bhat
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  2. N. S. Siddharthan
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Correspondence to N. S. Siddharthan .

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Editors and Affiliations

  1. Madras School of Economics, Chennai, 600 004, Tamil Nadu, India

    Natteri Siddharthan

  2. , Humanities and Social Sciences, Indian Institute of Technology Bombay, Mumbai, 400 076, Maharashtra, India

    Krishnan Narayanan

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Bhat, S., Siddharthan, N.S. (2013). Human Capital, Labour Productivity and Employment. In: Siddharthan, N., Narayanan, K. (eds) Human Capital and Development. Springer, India. https://doi.org/10.1007/978-81-322-0857-0_2

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