Technology and Wage Differential: A Case Study Using the Indian Manufacturing Sector

Abstract:     
In many recent studies, modern computer-oriented technological progress has been cited as one of the main reasons behind the diverging wage differential between workers with and without a college degree. This paper explores the relationship between change in wage differential and technological growth from a developing country's perspective. An individual-level dataset collected and published by the National Sample Survey Organisation (NSSO), Government of India, has been used for the study. Variables indicating Industry-specific technology change (from the Annual Survey of Industries data) are added to this primary dataset. Limitation of data does not allow us to look beyond salaried workers employed in the manufacturing industries. A three-stage sequential selection-correction mechanism, a-la Heckman, is used to take care of this sample selection problem. Moreover, this dataset is plagued with missing information on the earnings variable. A multiple imputation technique is employed to alleviate this problem. In the manufacturing sector, a converging wage differential is observed during the period 1983-1994. My main finding is that the technological change helped to raise the wages of workers at the lowest quartile of the wage distribution, whereas the effect of technological change is insignificant for workers at the topmost quartile of the wage distribution. Moreover I do not find any significant evidence of shift in labor demand towards workers employed in non-production jobs (traditionally, white-collar jobs), caused by technological change.

Number of Pages in PDF File: 33

Keywords: Skill-Biased Technological Change, Wage Differential, Capital-Skill Complementarity

JEL Classification: J31, O33

working papers series