A Division of Laborers: Identity and Efficiency in India

Abstract

Workers’ social identity affects their occupation, and therefore the structure and prosperity of the aggregate economy. We estimate a general equilibrium Roy model of this phenomenon in the Indian caste system, where work and identity are particularly intertwined. New data on occupation, wages, and caste’s traditional occupations and social status show that workers are over-represented in their traditional occupations and under-represented in socially higher or lower occupations. We consider counterfactuals removing castes’ hierarchical and occupational links. Despite more efficient human capital allocation, aggregate output gains are small–in some counterfactuals negative–due to weaker caste networks and reduced learning across generations.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.