Wage-Productivity Differentials and Indian Economic Efficiency

Amarendra Sahoo and Thijs ten Raa

Chapter 15 in Efficiency and Input-Output Analyses:Theory and Applications, 2021, pp 243-269 from World Scientific Publishing Co. Pte. Ltd.

Abstract: A frontier-general equilibrium analysis with skill transformation evaluates the productivities of skilled and unskilled labour and potential of the Indian economy. We compare the wages of skilled and unskilled labour 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 labour supply is endogenous in the model. Compared to its productivity, skilled labour is underpaid in the initial period and overpaid in the second period. Unskilled labour is underpaid in both periods. A decomposition exercise shows that skilled labour 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: Efficiency; Input-Output; Benchmarking; Performance Measurement; TFP; Environmental Policy Analysis; Mark-ups; Consumer Surplus; CES Demand; Linkages; Heckscher-Ohlin Trade Flows; Leontief (search for similar items in EconPapers)
JEL-codes: C67 D O12 (search for similar items in EconPapers)
Date: 2021
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Journal Article: Wage–productivity differentials and Indian economic efficiency (2012)
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