Evaluating the elasticity of substitution between capital and labour (both skilled and unskilled) in the Indian manufacturing sector

Arpit Gupta and Kashika Arora

EconStor Open Access Articles and Book Chapters, 2024, vol. 17, issue 1, 102 pages

Abstract: This study investigates the dynamics of the elasticity of substitution between capital and labour, both skilled and unskilled, across sixteen key industries in India's manufacturing sector. Employing a Constant Elasticity of Substitution (CES) production function and utilizing panel data spanning from 2001 to 2017, the research employs panel cointegration techniques to establish a long-term relationship between the variables. The study calculates long-run elasticity through FMOLS and DOLS estimators, revealing that in India's manufacturing sector, the elasticity of substitution between capital and skilled labour is higher compared to that between capital and unskilled labour, as consistently indicated by both estimators. These findings bear significant implications for industry-level resource allocation and labour market policies, suggesting a need for targeted strategies to enhance the integration and efficiency of skilled labour within the manufacturing sector.

Keywords: Elasticity of substitution; Factor mobility; CES production function (search for similar items in EconPapers)
JEL-codes: F10 F14 L60 O14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:342255

DOI: 10.47743/rebs-2024-1-0004

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