Essays on the wage structure in India

This thesis consists of three chapters. The first two chapters provide insights on the labor market in India during the period of transition from a centrally planned economy to a market oriented economy. Third chapter provide insights on social fabric in rural India.The first chapter is motivated by rising skill premium in India during the past decade. The tertiary-secondary (college-high school) wage premium has been increasing over the past decade, but the increase differs across age groups. Also, the increase in wage premium has been driven mostly by younger age groups, while older age groups have not experienced any significant increase. In this chapter, a demand and supply model with imperfect substitution across age groups developed in Card and Lemieux (2001) is used to explain the uneven increase in the wage premium across age groups in India. The findings of this chapter are that the increase in the wage premium has come mostly from demand shifts in favor of workers with a tertiary education. More importantly, the demand shifts occurred in both the 1980s and 1990s. Relative supply has played an important role not only determining the extent of increase in wage premium, but also its timing. The increase in relative supply of tertiary workers during 1983-1993 offset the demand shift, limiting the wage premium increase. But during 1993-1999, the growth rate of the relative supply of tertiary workers decelerated, while relative supply was virtually stagnant during 1999-2004. Both of these periods saw an increase in the wage premium as the countervailing supply shift was weak.The second chapter explores the distributional impact of the trade liberalization in 1991 on the labor market. The wage structure in urban India during the past two decades (1983-2004) is examined across the entire wage distribution using quantile regression and a quantile regression based decomposition. The chapter finds that real wages increased throughout the wage distribution during 1983-1993 however, it increased only in the upper half of the wage distribution during 1993-2004. Quantile regression analysis reveals that the effects of many covariates are not constant across the wage distribution. Moreover, increases in returns to covariates across the entire distribution are the driving forces behind the wage changes in both decades. Change in composition of the work force contributed positively to wage growth during 1983-1993, but negatively during 1993-2004. Finally, while workers with all education levels experienced an increase in returns of roughly the same magnitude during 1983-1993, the increase in returns is much higher for workers with tertiary and secondary education during 1993-2004. The inequality increasing effects of tertiary education suggests that wage inequality in urban India may increase further in the near future as more workers get tertiary education.The third chapter revisits the social group inequality in rural India. The revisit is motivated by the fact that the existing literature focuses on averages only neglecting the remainder of the distribution. In the presence of high level of heterogeneity, average may hide much more than they reveal. In addition, the classification of different social groups in the existing literature is restrictive. The chapter examines the differences in welfare, as measured by per capita expenditure (PCE), between social groups in rural India across the entire welfare distribution. The chapter establishes that the disadvantage suffered by two historically disadvantaged groups- Scheduled Castes (SCs) and Scheduled Tribes (STs) - is underestimated when the comparison group is Non-SCs/STs (as done in the existing literature), rather than general category (mostly higher castes). The ST households are the most disadvantaged followed by the SC and the Other Backward Caste households with respect to general category households, and the disadvantage exists across the entire distribution. Better covariates and better returns to those covariates contribute to the advantage of the general category households. The findings suggest that the policies to raise the human capital and strengthening the other productive assets of the SC and the ST households must remain a focus of attention besides promoting a more active labor market in rural India.