Amit Basole, Dimple Chopde and Paaritosh Nath Azim Premji University
Small manufacturing firms are considered to be engines of growth and job creation. While most research on small firms focuses on formal sector units, in India informal sector units far outnumber the formal. This is true even for manufacturing units employing 5 to 49 workers, which constitute only 5% of all unorganised units, but in absolute numbers are nine times more numerous than organised units in the same size class. Such firms have the potential to contribute to structural transformation but their capacities vis-a-vis formal firms are not well understood. To address this, we create a unit-level dataset combining Annual Survey of Industries data for organised (formal) units with the National Sample Survey data on unorganised (informal) units. We also discuss problems involved in this exercise and some ways to deal with them. We find that matching organised and unorganised units on observable characteristics reduces the labour productivity differences between them to around 25 percent. We discuss some policy implications of our results.
Keywords: Manufacturing, informality, productivity, employment
Basole Amit, Dimple Chopde and Paaritosh Nath. 2023. “Estimating the productivity gap between organised and unorganised small-scale units in India’s manufacturing sector” Centre for Sustainable Employment Working Paper #51, Azim Premji University, Bangalore.