Zane, Giulia
(2016)
Workers’ absences and productivity in the Indian registered manufacturing sector.
PhD thesis, London School of Economics and Political Science.
Abstract
It is a well-established fact that increasing firms’ productivity is a necessary step to achieve sustainable growth and development. In fact, low levels of productivity, in particular in the registered manufacturing sector, represent a major challenge for the Indian economy.
One key obstacle faced by these firms is the high level of employment protection, which makes it difficult to compete with the other sectors that largely rely on informal labour or flexible contracts.
High labour protection increases the incentive for workers to be absent from the factories whenever they have access to better job opportunities elsewhere. Moreover, India is undergoing a process of structural transformation, which is characterised by movement of workers from agriculture into manufacturing. During this process workers are often engaged in both sectors, particularly so across seasons. In fact, the lack of job opportunities during the lean agricultural seasons allows manufacturing firms to pay relatively low wages but, during the peak seasons, workers may find casual jobs in agriculture attractive and leave the firm temporarily.
Using firm level data, representative of the entire registered manufacturing sector, I find that absence rates are very high and negatively correlated with firms’ productivity. In particular, I notice that absence rates tend to be highest when labour demand in agriculture is highest, i.e. during the harvest seasons. Using worker level data from a large jute mill, I find that this behaviour is most common among workers who are recent migrants from rural to urban areas who have access to agricultural jobs in their home villages.
I exploit exogenous shocks to agricultural productivity, that increase seasonality in agricultural labour demand, to estimate the effect of seasonal absences on firms’ output. Finally, I develop a theoretical framework that that illustrates how seasonal absences can be interpreted as a consequence of asymmetric labour market rigidities between the two sectors and estimate the cost of these rigidities in terms of loss in manufacturing output and employment.
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