Changing Factor Incomes in Industries and Occupations: Review of Long Term Trends

Impressive growth in India in the recent past had been accompanied by rising inequality that can largely be attributed to changing factor shares in favour of profits. This paper apart from looking into factor shares such as wages, profits, rents and interests also focuses on the changing share of inputs in value of output. The changes are identified at the macro level and also at more disaggregated levels of corporate sector, manufacturing segment and industries at two digit levels. The paper argues that rising capital intensity in industries can largely be explained by the peculiar trajectory of growth that increasingly depends on profit income but also indicates that investments in the manufacturing sector were not always directed towards productivity raising machinery but also toward creating capacities that did not result in higher productivity. The paper highlights that average wage of workers falls far short from their productivity and in fact the labour lost more than half they could get for producing the same output in the past two decades. In the final section the paper argues that skill premium for workers in an excess labour supply situation is largely determined by the relative absorption capacity of various sectors and not really linked to skill requirements of specific sectors.