Inter-industry Wage Differentials in Indian Manufacturing

From a labour perspective, wage rates are reflective of the market demand for different skills and the institutional structures. Also, wage rate is a better measure of the well-being of workers solely dependent on wage income. This paper notes persistent regularity in industry-level wage rates confirming the absence of a convergence behaviour. The stability of industry-level wage rates brings industrial reforms under the scanner for their implications on worker welfare. Wage convergence could be inhibited by the inter-industry movement of workers.

Achieving a fair and balanced distribution of income is crucial to realising the Sustainable Development Goals of the United Nations Development Programme that aim to attain economic and social equality for all. The significance of spatial convergence of income is well-recognised in a number of international studies.¹ A prominent finding is that income inequalities have risen in industrial countries encouraging research to decipher the underlying causes for income accumulation at the top (Piketty 2014). This phenomenon is observed in India as well. Studies, such as those by Acemoglu (2002), ascribe technological progress as driving the trending inequalities, the mechanism being referred to as skilled-biased technological change (SBTC). Subsequently, the stronger demand for specific workers induces a separation in labour markets, based on worker skills. The resulting worker inequalities also induce inter-industry differences in worker attributes and their incomes.