Impact of Contractualization on Plant-Level Productivity in India: Evidence from Unbalanced Panel Data

The rise of temporary contract labour or agency work is steadily reshaping employment structures across industries in India. This study investigates the impact of rising contractualization on plant-level productivity in India’s formal manufacturing sector, using unbalanced panel data from the Annual Survey of Industries 1999–2000 to 2018–2019. Our findings show that contract-labour-intensive enterprises have witnessed significant productivity losses, exhibiting 14.6% lower labour productivity and 29.4% lower total factor productivity compared to regular-labour-intensive enterprises. The negative effects are particularly severe in small and medium enterprises and labour-intensive industries. Using fixed-effects regressions and propensity score matching to control for unobserved heterogeneity and self-selection bias, we find robust evidence that greater contract labour intensity is associated with reduced productivity, highlighting the urgent need for policy interventions to reverse the ongoing trend of informalization in the industrial sector.