Short-term contracts and their effect on wages in Indian regular wage employment

Abstract

The increase in regular wage employment in the Indian economy between 2004-2005 and 2011-2012 was accompanied by a significant deterioration in job security; more workers found themselves on short-term and insecure contracts-a continuing trend. Insecurity of tenure results in a significant wage penalty for short-term workers, compared with those with longer term contracts. This article estimates the negative effect of short-term contracts on the wages of Indian regular wage workers all along the income distribution-unlike earlier studies-using the method of unconditional quantile regressions on data from the 68th round and the 61st round of the National Sample Survey Organisation on Employment covering the period 2004-2005 and 2011-2012. It finds that the wage penalty due to short-term contracts is higher for high-wage workers than for low-wage workers, with the maximum impact felt by median wage workers, and has increased for higher paid workers from 2004-2005 to 2011-2012. The spread of informal employment arrangements within India's formal labour markets has resulted in an increasingly unequal distribution of workers' access to the benefits of growth, reflecting a shift in power in favour of capital. These findings, specific to a developing economy like India, stand in contrast with studies in European countries, where highwage workers do not face as much of a penalty for short-term contract work as lowwage workers.

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