Trade policy and wage inequality: evidence from Indian manufacturing

Kunal Sen

Indian Growth and Development Review, 2008, vol. 1, issue 2, 147-171

Abstract: Purpose - There has been a period of slow but a steady increase in wage inequality in the Indian manufacturing sector since the mid‐1980s, which has gone hand‐in‐hand with an increase in the relative employment of skilled workers across all industries in the same period. The purpose of this paper is to investigate whether the co‐movement of relative employment and wages of skilled workers can be attributed to the changes in trade policy that has occurred in the Indian economy since the mid‐1980s. Design/methodology/approach - The two dominant theoretical perspectives on why trade reforms lay lead to wage inequality are Heckscher–Ohlin theory and trade‐induced skill‐biased technological change (SBTC). The paper evaluates the applicability of these theoretical perspectives to the Indian case using disaggregated industry data fromAnnual Survey of Industriesfrom 1973 to 1997. Findings - Evidence was found of the validity of both the two dominant theoretical perspectives on wage inequality to explain the co‐movement in wage inequality and relative skill intensity in Indian manufacturing, with both variables increasing in the 1990s. Trade‐induced technological progress has led to an increase in relative skill intensity and wage inequality within industries. At the same time, the decline in protection that seems to have occurred more in unskilled labour‐intensive industries has led to a relative fall in the economy‐wide return to unskilled labour relative to skilled labour. Therefore, trade reforms have led to a widening of wage gap between skilled and unskilled workers, and an increase in relative skill intensity in Indian manufacturing. Originality/value - The paper contributes to support of the trade‐induced SBTC hypothesis which may provide a consistent explanation of why many countries in the south experienced increases in wage inequality with the onset of trade liberalisation.

Keywords: Pay differentials; Skills; Bias; Technology led strategy; India; Manufacturing industries (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:igdrpp:v:1:y:2008:i:2:p:147-171

DOI: 10.1108/17538250810903765

Access Statistics for this article

Indian Growth and Development Review is currently edited by Professor Chetan Ghate, Professor Prabal Chowdhury and Professor Prabal Chowdhury

More articles in Indian Growth and Development Review from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().