ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Price of Land and Skill Bias in Manufacturing

For a comprehensive analysis of the influence of relative factor prices on the nature of manufacturing or any other economic activity, one should include not just labour and capital but also land.

Discussions on the reasons for India’s bias towards skill-intensive manufacturing have focused on labour regulations, which raise the effective price of labour, leading to its substitution by capital. This leads to the important policy prescription that promotion of labour-intensive manufacturing in India requires a reduction in protective labour regulation, which, in turn will make the price of labour fall to its market level.

The reformer’s standard argument is that labour laws make the organised labour market rigid, deter employment creation and increase capital intensity, despite India’s labour cost advantage (Debroy 2005: 58).

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