Do Temporary Workers Face Higher Wage Markdowns? Evidence from India's Automotive Sector

Davide Luparello

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Abstract: Contract workers constitute half of India's automotive employment but earn substantially less than permanent workers. Using ASI data (2002-2019), I develop an estimator of labor supply and demand schedules to explain this wage premium. The model features worker-type-specific discrete choice labor supply, nested CES production, Nash-Bertrand competition for contract workers, and plant-union bargaining for permanent workers. I find the premium stems entirely from higher productivity rather than differential monopsony power. While a lump-sum transfer offsetting wage markdowns would increase welfare by 14% for permanent and 12% for contract workers, it would simultaneously increase the premium by 14%, exacerbating inequality.

Date: 2025-07, Revised 2025-10
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