 Wage–productivity differentials and Indian economic efficiencyAmarendra Sahoo and Thijs ten Raa Economic Modelling, 2012, vol. 29, issue 2, 341-348 Abstract: A frontier-general equilibrium analysis with skill transformation evaluates the productivities of skilled and unskilled labor and potential of the Indian economy. We compare the wages of skilled and unskilled labor between 1994 and 2002 with their respective productivities over this period. Education is considered to be responsible for the skill formation over this period: the change in skilled labor supply is endogenous in the model. Compared to its productivity, skilled labor is underpaid in the initial period and overpaid in the second period. Unskilled labor is underpaid in both periods. A decomposition exercise shows that skilled labor gains from free trade, and stands to lose due to education and domestic competition in the second period. The annualized rate of return to education is between 7 and 10%. The economy operates below its potential in both periods, particularly in the second—due to trade limitations and the failure to capture the return to education. Service sectors are found to have potential to grow significantly. Keywords: Competitive pressure; Wage and productivity inequality; Efficiency; Returns to education; Frontier-general equilibrium analysis; Multiplicative decomposition; Skill formation; Trade efficiency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:2:p:341-348 DOI: 10.1016/j.econmod.2011.11.002 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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