Wage Inequality in Indian Manufacturing – Is it Trade, Technology or Labour Regulations?

K.V. Ramaswamy
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This paper investigates the question of wage inequality in Indian manufacturing in the
years of trade and investment liberalization. The objective is to test the hypothesis of
skill biased technological change (SBTC) due to capital-skill complementarity and the
impact of labour regulations on wage inequality between skilled and unskilled labour.
The skill-wage bill share equation is estimated for a panel of 46 three-digit industries
spanning the period 1981-2004 followed by 113 four-digit industries panel covering
the period 1993 to 2004.The econometric results suggest the positive contribution of
change in output (scale effect), capital-output ratio and contract-worker intensity to
wage inequality in Indian manufacturing.