This study provides an empirical investigation of the adjustment process of labour in Indian
manufacturing industries, which evolved through structural transformation in the era of
globalization. The analysis is based on a dynamic model applied to a panel of 22 two-digit
manufacturing industries for the time period of 22 years covering 1980/81 to 2001/02. We
assume that as competition increases industries adjust their employment to a desired level
which is both industry and time specific. The results indicate that the manufacturing sector
has shown a considerable dynamism in adjusting its workforce. The long run labour demand
responds greatest to the output, followed by capital and least by wages. It is observed that
Indian manufacturing is not inefficient in labour use as modest speed of adjustment has led
employment size closer to the optimal level.