Human Capital, Labour Productivity and Employment

This paper analyses the importance of human capital in determining the inter-state differences in labour productivity and its growth in India. The paper 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 section weights show that after controlling for other determinants, variables representing human capital emerge significant determinants of productivity. Furthermore, higher enrolments in high schools not only contribute 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.