Wage Variations Across Sectors and Types of Employment in India

Abstract

Wage determination depends on a number of factors, including policy initiatives and the presence/absence of labor market institutions. Some of these unobserved variables may be captured in terms of the sector and/or the nature of employment itself. This study tries to focus on the sector of choice or employment type as an important determinant of wages/earnings, after including the important controls. However, a serious endogeneity issue is encountered as the sector/type of employment itself is a decision based on several reasons. After estimating the occupational choice function through a multinomial logit model and correcting for endogeneity, findings still confirm that wages vary across sectors and types of employment. Among the other determinants, human capital, caste-specific disadvantages, age effect, and possible gender differentials cannot be ignored. But even after considering the impact of the important controls, the sensitivity of wages/earnings to the sector/type of employment cannot be ignored. This has important policy implications: sector or type of employment with gross disadvantages needs a great deal of state support. With the same human capital endowment, caste background, and other characteristics, workers face disadvantages in certain types of jobs or sectors of employment, which could be related to recruitment practices, employment clauses, possibilities of exploitation by the contractors, low levels of productivity, and the lack of institutional support.