Evolution of global production systems and their impact on employment in India

Abstract

Fragmentation and geographical dispersion of production processes have had significant impacts upon domestic labour markets. This paper attempts to empirically identify some of these impacts on India's labour market from a macro-economic perspective. The findings indicate substitution of unskilled labour by more skilled workers in relatively skill-intensive and high FDI-recipient industries such as automobile components and chemicals. The substitution effect is also noticed in less skill-intensive manufacturing segments like textiles and leather. The paper argues that substitution effects in these industries are weaker due to emphasis on volume-based output induced by high demand. Focusing closely on the auto components industry, the paper finds that though processes have become leaner, young firms have created new employment opportunities. The paper concludes by arguing that labour market effects of integration into global supply chains must be interpreted with caution as such effects vary widely across industries.