Examining the Relationship between Inflation and Organised Sector Employment in India: Evidence from 1974-75 to 2010-11

Abstract

Purpose: This study examines the relationship between inflation and organised-sector employment in India, with particular emphasis on the private and public sectors, over the period 1975–2011. It assesses whether inflation significantly affects organised-sector employment and examines the roles of GFCF and real GDP growth in explaining employment dynamics across the private and public sectors.

Methods: The study uses annual data on CPI-IW inflation, organised private- and public-sector employment, gross fixed capital formation (GFCF), and real GDP growth. The analysis employs unit-root tests, structural-break analysis, ARDL bounds testing, an error-correction model (ECM), diagnostic and stability tests, and Granger causality analysis to examine both short- and long-run relationships.

Findings: The results reveal substantial variation and structural breaks in inflation, employment, and economic growth. The ARDL bounds test finds no long-run relationship for private-sector employment but establishes a significant relationship for public-sector employment. The ECM shows rapid adjustment, with 82.9 per cent of short-run disequilibrium corrected annually. In the long run, GFCF is negatively associated with public-sector employment, while inflation and real GDP growth are insignificant. Granger causality runs from GFCF to public-sector employment and from public-sector employment to real GDP growth. The findings do not support a conventional Phillips Curve mechanism.

Implications: The findings suggest that employment depends more on investment, growth, and structural factors than on inflation. Policy should therefore prioritise productive investment, sector-specific employment strategies, and macroeconomic stability.

Originality: The study contributes by examining inflation–employment dynamics separately across organised private and public sectors using long-run, short-run, structural-break, and causality analyses. The findings show that employment responses to inflation differ by sector, with investment and institutional factors appearing more important than inflation.

  • Page Number : 1-21

  • Published Date : 2026-10-09

  • Keywords
    Inflation, Organised sector employment, Private sector employment, Public sector employment, Phillips curve, Economic growth

  • DOI Number
    10.15415/jtmge/2026.172001

  • Authors
    Rajesh Pal and Reena Nigam

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