Growth, Employment, Productivity and Demographics in Indian States: Lessons from an Accounting Decomposition

Jayadev, Arjun and Tripathi, Avinash (2026) Growth, Employment, Productivity and Demographics in Indian States: Lessons from an Accounting Decomposition. Working Paper. Azim Premji University, Bengaluru.

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Abstract

This paper examines the interaction between demographic change, employment absorption, and productivity growth across Indian states using a transparent accounting decomposition. Methodologically, we extend standard demographic dividend accounting by explicitly incorporating labor-market absorption, decomposing per capita Net State Domestic Product (NSDP) growth into output per employed worker, the employment-to-working-age population ratio, and the working-age share of the population. This employment-adjusted framework separates the mechanical contribution of age structure—the arithmetic demographic dividend—from labor-market dynamics and productivity performance. Using state-level data spanning 1994–2023, we document substantial heterogeneity in demographic transitions and growth experiences across Indian states. Declining dependency ratios provided a positive mechanical contribution to per capita growth in almost all states. However, this potential dividend was frequently muted—and in several cases fully offset—by falling employment-to-working-age ratios, particularly during the high-growth period from 2004 to 2017. At the same time, several better performing states, sustained high growth in output per working-age adult over long periods. A three-period decomposition (1994–2004, 2004–2017, and 2017–2023) reveals a marked shift in the composition of growth. While earlier phases were characterized by strong productivity growth alongside weak employment absorption, the post-2017 period exhibits a partial recovery in employment ratios accompanied by a broad-based slowdown in productivity per employed worker. We use the historical bounds implied by these decompositions to construct counterfactual growth trajectories, highlighting the limits of demographic advantage in the absence of employment-intensive productivity growth.

Item Type:	Monograph (Working Paper)
Authors:	Jayadev, Arjun and Tripathi, Avinash
Document Language:	Language English
Uncontrolled Keywords:	Demographic dividend, employment absorption, labor productivity, state-level economic growth, India
Subjects:	Social sciences Social sciences > Education
Divisions:	Azim Premji University - Bengaluru > University Publications > Centre for the Study of the Indian Economy (CSIE)
Full Text Status:	Public
URI:	http://publications.azimpremjiuniversity.edu.in/id/eprint/6591
Publisher URL:	https://azimpremjiuniversity.edu.in/

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