On the Institutional and Technological Determinants of Contract Labor: Evidence from a Trade Shock

Transcription

1 On the Institutional and Technological Determinants of Contract Labor: Evidence from a Trade Shock Pavel Chakraborty 1 Rahul Singh 2 Vidhya Soundararajan 3 1 Lancaster University 2 IIM Bangalore 3 IIM Bangalore August 21, 2018

2 Motivation Global trend of increased flexibility in the workforce (Autor, 2003; Bacchetta et al., 2009) Globalization and Labor Institutions often cited as the cause Lack of causal linkage between trade and flexibilization of workforce India has witnessed a dramatic change in composition of workforce in the formal sector Growth in permanent workers has stagnated Job growth primarily driven by contract workers Between CAGR for directly employed workers was 0.55% compared to 6.79% for contract workers By 2007, contract share in manufacturing rose to 33% from around 15% in 1998

3 Research Question We study the determinants of contract worker employment in Indian manufacturing Examine the causal effect of Chinese imports on contract workers employment in Indian manufacturing firms

4 Chinese Imports Chinese Imports to India Imports Year Figure: Chinese manufacturing imports to India from

5 Motivation: Stylized Facts/Trends Chinese import penetration and share of regular workers Share of regular workers Year Chinese import penetration share of regular workers Chinese import penetration Figure: Chinese import penetration and share of regular workers

6 Chinese Imports Why Chinese imports? China became the world s largest exporter in 2009 Share in total imports to India saw a dramatic increase from 5% in 2000 to 18% in Evidence on employment effects of trade mainly comes from trade liberalization episode in the 1990 Provides ideal setting for estimating causal effects of increased trade outside of trade liberalization Increase in Chinese exports largely driven by supply side shocks due to reforms in China in the 80s and 90s

7 Related Literature Literature on contract worker employment in India has focused on: Trade openness (Saha et al., 2013) Increased trade increases share of contract workers Counter the bargaining power of regular workers Endogeneity concerns Transitory shocks like rainfall (Chaurey, 2015) Contract worker employment is driven by response of firms in pro-worker states Contract worker employment spans all states, even pro-worker and neutral states Mostly exploratory work (Das et al., 2015; Srivastava et al., 2016; Singh et al., 2017) Causal channels for contract workers employment relatively unexplored in the literature

8 Main Contribution We study contract worker employment responses to both import competition as well as access to imported inputs from China No prior work on the effect of imported inputs on flexibility of workforce Highlights the importance of studying competition and input access together Establishes causal channels for firms decision to use contract workers in response to Chinese imports Industry Technology: Sales Volatility Novel mechanism relatively unexplored in the literature Labor Institutions: IDA Act Countering Bargaining Power of Permanent Workers

9 Motivation: Stylized Facts/Trends Figure: Source: Chaurey (2015)

10 Motivation: Stylized Facts/Trends Contract worker share Sector wise contract share Sector Contract worker share Sector wise contract share Sector Figure: Sector wise change in contract share of workers between 1999 & 2007

11 Motivation: Stylized Facts/Trends Sector wise change in contract share ( ) change in contract worker share Sector Figure: Sector wise change in contract share of workers between 1999 & 2007

12 Motivation: Stylized Facts/Trends Industry sales volatility and change in contract share of workers change in contract worker share in industry Industry wise sales volatility change_contract_share Fitted values Figure: Industry sales volatility and change in share of contract workers between 1999 & 2007

13 Motivation: Stylized Facts/Trends Frequency wagegap Figure: Wagegap between contract and regular workers

14 Import Competition and Employment Low productivity firms: Negative employment shock Typically small in size Unambiguous decline in employment High productivity firms Typically large in size Ambiguous effect on employment Reallocation of resources: Expansionary effect Increased Efficiency: Expansionary effect Increased capital intensity: Contractionary effect Increased labor productivity: Contractionary effect

15 Imported Inputs and Employment Cheaper inputs already available in domestic market Whether produced in-house (negative) or from domestic suppler (positive) Expansionary effect from cheaper inputs Expansionary effects from new product introductions Variety effect: Previously unavailable inputs Unambiguous increase in employment New product introductions Expansions from efficiency gains

16 Why contract labor? Advantages No adjustment costs Lower wages on average Ideal for routine jobs Disadvantages Plausibly less productive Human capital and long run efficiency issues Firms (> 50 workers) face adjustment costs in hiring of permanent workers (IDA Act) Exposure to import competition increases sales volatility Firms need to hire and fire workers more frequently To counter the bargaining power of regular workers

17 Data Firm level data from Annual Survey of Industries ASI database is an annual survey of manufacturing firms in India Only database which captures firm level contract workers employment These firms account for a substantial fraction of output in the organized manufacturing sector Detailed information on regular, contract and managerial workers as well as working hours by type of worker

18 Data Trade data from United Nations Comtrade Database Input-Output table for India for Prowess data from

19 Empirical Strategy Specification to estimate the effect of Chinese imports on employment responses X ijst = α 0 + α i + α j(2),t + α s,t + β 1 j,t + β 2 INP china j,t + β 3 IS China,US (1) j,t + ν ipt i denotes firm, s denotes product and j denotes industry X ijst denotes total workers, regular workers, contract workers, contract worker ratio or contract mandays ratio α i and α j(2),t and α s,t are firm, sector-year and state-year fixed effects respectively.

20 Empirical Strategy Main measure of Chinese import competition jt = M IC jt (Y j,94 + M j,94 X j,94 ) (2) Identification Strategy Endogeneity concerns Chinese imports may be correlated with industry import shocks Instrument for Chinese imports to India by Chinese imports to other countries (Autor et al., 2013; Acemoglu et al., 2016) IV china M IC,Others j,t 1 jt = (Y j,94 + M j,94 X j,94 ) (3) Identifying supply driven component of Chinese imports to India Chinese exports increased primarily due to increased manufacturing productivity from: Structural reforms undertaken by Chinese government Accession to WTO

21 Identification Strategy Exclusion Restriction : Plausible sources of violation Competition in foreign markets Control for Chinese import competition in foreign markets Common technology or demand shock to an industry across the developing world Sector-Year fixed effects to sweep out sector-year specific shocks

22 Chinese Imports Imports Chinese Imports to India and Other Developing Countries Year chinese imports to India Chinese imports to a set of developing countries Figure: Chinese manufacturing imports to India and other developing countries, namely Brazil, Malaysia, Indonesia and Mexico from

23 Chinese Imports Chinese Import Share in Various Countries Chinese Import Share Year India Mexico, Brazil, Indonesia and Malaysia Mexico Figure: Chinese Imports Share in India and other Developing Countries

24 Empirical Strategy Table: Chinese Imports and Exports in India and other Developing Countries India Mexico Indonesia Malaysia Brazil (1) (2) (3) (4) (5) Panel A: Chinese Imports (in billions 2007 US$) Panel B: Chinese Import Share Panel C: Exports to China (in billions 2007 US$) Panel D: Chinese Export Share

25 Empirical Strategy Measure of access to Chinese imported inputs INP china jt = s α js st (4) The instrument for (4) is given by IV INP china jt = s α js IV china st (5) αjs is the share of input s in total output for industry j st is the import penetration ratio for input s. IV china st is the instrument for import penetration ratio for input s.

26 Empirical Strategy Specification to estimate the effect of Chinese imports on employment responses based on Sales Volatility X ijst = α 0 + α i + α j(2),t + α s,t + β 1 j,t + β 2 INP china j,t + β 3 j,t xvolatility j + β 4 INP china j,t xvolatility j + β 5 IS China,US j,t + ν ipt (6) i denotes firm, s denotes product and j denotes industry X ijst denotes total workers, regular workers, contract workers, contract worker ratio or contract mandays ratio α i and α j(2),t and α s,t are firm, sector-year and state-year fixed effects respectively. Hypothesis: β 3 > 0

27 Empirical Strategy Specification to estimate the effect of Chinese imports on employment responses based on labor laws X ijst = α 0 + α i + α j(2),t + α s,t + β 1 j,t + β 2 INP china j,t + β 3 j,t xlarge ijst + β 4 xmedium ijst + β 5 INP china j,t xlarge ijst + β 6 INP china j,t xmedium ijst + β 7 IS china j,t xlarge ijst + β 8 IS china j,t xmedium ijst + β 9 IS China,US j,t + ν ipt j,t (7) i denotes firm, s denotes product and j denotes industry X ijst denotes total workers, regular workers, contract workers, contract worker ratio or contract mandays ratio α i and α j(2),t and α s,t are firm, sector-year and state-year fixed effects respectively.

28 Empirical Strategy Specification to estimate the effect of Chinese imports on regular and contract wages X ijst = α 0 + α i + α j(2),t + α s,t + β 1 j,t + β 2 INP china j,t + β 3 IS China,US j,t + ν ipt (8) X ijst = α 0 + α i + α j(2),t + α s,t + β 1 j,t + β 3 j,t + β 5 IS China,US j,t + β 2 INP china j,t xwagegap ijst + β 4 INP china j,t xwagegap ijst + ν ipt i denotes firm, s denotes product and j denotes industry X ijst denotes log of contract wages or regular wages per worker Hypothesis: Regular Wages: β 3 < 0, β 4 < 0 Contract Wages: β3 > 0, β 4 > 0 (9)

29 Results Table: Chinese Imports and Contract Workers Total Regular Contract Contract worker Contract mandays workers workers workers ratio ratio (1) (2) (3) (4) (5) Panel A : jt (24.14) (11.68) (24.67) (0.0280) (0.0293) IS China,US jt (41.88) (33.40) (26.84) (0.0439) (0.0437) Observations 190, , ,855 Panel B : jt (24.69) (11.73) (25.47) (0.0281) (0.0294) INP china jt 247.3*** *** ** ** (59.29) (28.66) (35.18) (0.0251) (0.0259) IS China,US jt (39.29) (35.32) (24.61) (0.0462) (0.0460) Observations 185, , , , ,697 Firm FE Yes Yes Yes Yes Yes Sector Year FE Yes Yes Yes Yes Yes State Year FE Yes Yes Yes Yes Yes

30 Results Table: Chinese Imports and Contract Workers: Role of Technology Total Regular Contract Contract worker Contract mandays workers workers workers ratio ratio (1) (2) (3) (4) (5) Panel A : jt * * * (75.03) (68.81) (37.36) (0.0636) (0.0592) jt x volatility j 354.0** ** 0.373*** 0.399*** (160.3) (139.2) (81.26) (0.119) (0.114) IS China,US jt (41.29) (28.23) (32.73) (0.0457) (0.0460) Observations 134, , , , ,486 Panel B : jt ** ** * (147.2) (100.4) (85.96) (0.0795) (0.0765) INP china jt (916.1) (566.4) (468.5) (0.453) (0.451) jt x volatility j 718.2** ** 0.531*** 0.568*** (337.5) (184.7) (195.4) (0.170) (0.168) INP china jt x volatility j , (1,970) (1,144) (1,089) (0.889) (0.888) IS China,US jt (42.50) (27.91) (33.84) (0.0446) (0.0452) Observations 134, , , , ,486 Firm FE Yes Yes Yes Yes Yes Sector Year FE Yes Yes Yes Yes Yes State Year FE Yes Yes Yes Yes Yes

31 Results Table: Chinese Imports and Contract Workers: Role of Labor Laws Total Regular Contract Contract worker Contract mandays workers workers workers ratio ratio (1) (2) (3) (4) (5) Panel A : jt (29.00) (13.15) (27.68) (0.0310) (0.0324) jt x large ijt (69.51) (31.27) (55.56) (0.0514) (0.0504) jt x medium ijt 27.07* (15.16) (8.452) (13.12) (0.0371) (0.0373) Observations , ,855 Panel B : jt (26.78) (12.65) (27.11) (0.0309) (0.0324) INP china jt 191.0*** *** *** *** (65.86) (34.82) (39.54) (0.0280) (0.0289) jt x large ijt (52.93) (31.66) (43.11) (0.0492) (0.0483) jt x medium ijt 19.39* (10.61) (8.143) (9.056) (0.0351) (0.0353) INP china jt x large ijt 426.8** *** * * (168.9) (105.9) (94.61) (0.0394) (0.0405) INP china jt x medium ijt 128.1*** *** 0.118*** 0.117*** (29.17) (25.44) (35.72) (0.0284) (0.0287) Observations 185, , , , ,697

32 Results Table: Chinese Imports and Contract Workers: Coastal vs Inland States Total Regular Contract Contract worker Contract mandays workers workers workers ratio ratio coastal inland coastal inland coastal inland coastal inland coastal inland (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) jt (28.68) (21.32) (15.78) (9.271) (28.55) (21.91) (0.0268) (0.0305) (0.0271) (0.0328) INP china jt 279.7*** *** (42.89) (698.9) (34.93) (421.4) (21.01) (588.6) (0.0423) (0.450) (0.0423) (0.464) IS China,US jt (51.02) (43.45) (47.23) (34.50) (29.61) (32.92) (0.0621) (0.0359) (0.0617) (0.0366) Observations 114,565 71, ,565 71, ,565 71, ,480 71, ,937 70,757 Firm FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Sector Year FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes State Year FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

33 Results Table: Chinese Imports and Wages: Bargaining Channel regular wages contract wages regular regular and contract contract regular and contract Firms with : workers workers workers workers (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) jt *** 0.426*** 1.770*** 1.735** *** * ** * * (0.0226) (0.0244) (0.0908) (0.581) (0.793) (0.0244) (0.0321) (0.137) (0.356) (0.352) INP china jt * 4.520** (0.596) (1.258) (1.129) (1.903) (1.953) (0.967) (1.011) (1.042) (0.904) (0.850) jt x wagegap ijt *** *** ** 0.319* (0.104) (0.680) (0.926) (0.168) (0.403) (0.399) INP china jt x wagegap ijt ** ** *** *** 1.023*** (0.290) (1.310) (1.508) (1.411) (0.414) (0.215) wagegap ijt *** 0.003** 0.004*** 0.357*** *** *** (0.0236) (0.0014) (0.0016) (0.0398) (0.0004) (0.0002) IS China,US jt * * * (0.100) (0.128) (0.115) (0.209) (0.208) (0.0861) (0.122) (0.101) (0.0909) (0.0904) Observations 164,510 37,496 37,363 55,268 55,268 45,541 37,496 37,363 55,268 55,268 Firm FE Yes Yes Yes No No Yes Yes Yes No No Sector Year FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes State Year FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

34 Results Table: Chinese Imports and Contract Workers: Margins of Adjustments Total Regular Contract Contract worker Contract mandays workers workers workers ratio ratio Entry Exit (1) (2) (3) (4) (5) (6) (7) jt ** ** ** * (27.28) (13.72) (28.02) (0.0367) (0.0377) ( ) ( ) INP china jt * ** ** *** (100.2) (50.28) (70.76) (0.0621) (0.0639) (0.0160) ( ) jt x Incumbent i ** ** (22.26) (13.37) (26.69) (0.0339) (0.0329) jt x Entrant i * 0.637*** 0.625*** (59.26) (36.79) (52.92) (0.164) (0.162) INP china jt x Incumbent i 661.6*** 132.4*** 529.2** (194.2) (42.21) (204.7) (0.117) (0.117) INP china jt x Entrant i 586.9* ** 0.583*** 0.594*** (347.5) (163.9) (186.0) (0.191) (0.189) IS China,US jt (39.64) (35.43) (24.13) (0.0472) (0.0468) (0.0192) (0.0160) Observations 185, , , , , , ,685 Firm FE Yes Yes Yes Yes Yes Yes Yes Sector Year FE Yes Yes Yes Yes Yes Yes Yes State Year FE Yes Yes Yes Yes Yes Yes Yes

35 Conclusions We provide the first evidence of causal linkage between Chinese imports and contract worker employment by Indian manufacturing firms We identify institutional and technological determinants of increased contract worker employment Sales Volatility Labor Laws Bargaining power of workers

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