Productivity without movement: evidence from state-level decomposition of labor productivity in India, 1980–2023

This article examines the long-run evolution of labor productivity in India, utilizing McMillan’s and De Vries’s state-level decomposition of aggregate labor productivity into within-sector and between-sector components from 1980 to 2023. The analysis finds that labor productivity within-sector rises, but the between-sector effect remains weak, challenging the conventional narrative of structural transformation. Changes in agricultural employment shares have not been accompanied by increases in manufacturing employment shares, revealing a distinct pattern of employment transformation in India. Furthermore, the findings show that manufacturing sector plays a dominant role in driving labor productivity rather than the service sector indicating a pattern of productivity without movement. The study also highlights the coexistence of modest static gains and pervasive negative dynamic effects, suggesting that structural change in India has been episodic rather than transformative. This article concludes by discussing the implications of this pattern for industrial policy, labor market reforms, regional development and inclusive growth.