Why Do Contract Workers Earn Less? Evidence from India’s Auto Industry

Davide Luparello

No 25258, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: Contract workers constitute half of employment in India’s automotive industry but earn substantially less than permanent workers. Using data from the Annual Survey of Industries (2002-2019), I develop an estimator of labor supply and demand schedules to explain this wage premium. The model features nested CES production with distinct worker types, discrete choice supply functions with worker type-specific wage sensitivity and differentiated market conduct—Nash-Bertrand competition for contract workers versus plant-level union bargaining for permanent workers. I find that the wage premium stems entirely from permanent workers’ higher productivity rather than differential monopsony power or unionization advantages.

Keywords: Markdowns; Markups; Productivity; India (search for similar items in EconPapers)
JEL-codes: L11 L13 L62 (search for similar items in EconPapers)
Pages: 99
Date: 2025
New Economics Papers: this item is included in nep-mac
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