Labor Market Power and Rent Sharing in the Indian manufacturing sector, Link 

Abstract: In the context of the global decline in labor share that has been linked to a rise in market power, this paper studies the labor market power and wage setting behavior of firms in India's organized manufacturing sector. I use a structural approach to estimate employer market power in the labor market in the Indian manufacturing sector for the period 2003-2019 using firm-level panel data from the Annual Survey of Industries (ASI). Further, I examine the connections between competition in the labor market and product market, and document the causes of heterogeneity in the estimates of wage markdowns. My findings suggest that 70% of the firm-year observations in my sample set wage markdowns, while another 18% set wage markups. For the subset of firms that set wage markdowns, I find that a worker employed at the median manufacturing firm earns 46% on every rupee generated on the margin. The heterogeneity in the wage markdown estimates is largely accounted for by between-firm variation within industries, rather than variation between industries. Moreover, the findings suggest that age and firm size (independent of a concentration effect) are key firm-level drivers of the heterogeneity in wage markdowns and larger firms set lower wage markdowns compared to smaller firms. This finding is in contrast to the U.S. context, where wage markdowns increase with firm size. Furthermore, I find that capital intensity and export share are important industry-level determinants of the variation in wage markdowns.

What to make of the Kaldor-Verdoorn Law? (with Deepankar Basu), Link 

Abstract: The Kaldor-Verdoorn law refers to a positive but less than one-for-one causal relationship between the growth rates of output and labour productivity. While empirical research has found that the Kaldor-Verdoorn coefficient lies between 0 and 1, the interpretation of this finding remains unclear. In this paper, we present a model to derive the Kaldor-Verdoorn law. Our results show that the Kaldor-Verdoorn coefficient is jointly determined by the elasticity of factor substitution, labour supply elasticity, the profit share and the increasing returns to scale (or demand-induced technical change) parameter. Hence, estimated Kaldor-Verdoorn coefficients cannot be used, on their own, to infer the presence of aggregate increasing returns to scale—with the exception of the benchmark case of Leontief Production technology (and steady-state analysis coupled with the assumption of Cobb-Douglas production technology). We also report a surprising result: an economy without aggregate increasing returns to scale (or without any demand-induced technical progress) can generate a Kaldor-Verdoorn coefficient that lies between 0 and 1. 

 The Kaldor-Verdoorn Law under alternative conceptualizations of the labor market (draft available upon request)