Employment Intensity of Service Sector in India: Trend and Determinants

Abstract — A well-functioning service sector is the key to the economic performance of the contemporary developing countries. India is no exception, where service sector grows at a faster rate. What is, however, critical is the capacity of the service sector to create new jobs. This study investigates the employment intensity of service sector growth in India and examines the role of fundamental macroeconomic factors in determining the same. The results indicate that over the years, while output growth rate in service sector has increased, employment growth rate has decelerated significantly leading to considerable fall in employment elasticity. Coupled with this, there is predominance of low productive and unskilled labour based activities in service sector. Regression results based on the time-series data from 1960-61 to 2004-05 further indicate that investment friendly environment, better public expenditure management, effective labour policies and proper structural transformation are the key to achieve higher employment elasticity in service sector. Keywords- growth; employment; structural change; service sector I