Does Global Economic Integration affect Labour Income Share in India?

This paper examines the impact of economic integration on labour income share both at the aggregate as well as at the disaggregate industry levels of Indian economy. The paper uses the ARDL approach for the aggregate level analysis and the panel GMM method for the disaggregate level analysis. The results from both the analysis confirm that global economic integration and technological progress affect the labour income share in India. It also brings out the evidence that a stronger degree of economic integration is associated with the declining labour income share which is accompanied by rising labour productivity, employment, wage rates, and capital income. That means there is a positive correlation of economic integration with the wage rate, employment, capital earnings and labour productivity. However, it also makes an important observation that the labour share is adversely affected, as the wage rate growth lags the labour productivity growth and the compositional shift takes place due to the rising capital income. The increases in employment and wage rate are not enough to offset the adverse effects on the labour share in India.