تفاوت دستمزد-بهره وری و کارایی اقتصادی هند

A frontier-general equilibrium analysis with skill transformation evaluates the productivities of skilled and unskilled labor and potential of the Indian economy. We compare the wages of skilled and unskilled labor between 1994 and 2002 with their respective productivities over this period. Education is considered to be responsible for the skill formation over this period: the change in skilled labor supply is endogenous in the model. Compared to its productivity, skilled labor is underpaid in the initial period and overpaid in the second period. Unskilled labor is underpaid in both periods. A decomposition exercise shows that skilled labor gains from free trade, and stands to lose due to education and domestic competition in the second period. The annualized rate of return to education is between 7 and 10%. The economy operates below its potential in both periods, particularly in the second—due to trade limitations and the failure to capture the return to education. Service sectors are found to have potential to grow significantly.

Do wage differentials follow productivity differentials and which economic inefficiencies cause distortions? For long, Indian industries were characterized by inefficiency, high costs and uneconomical means of production with pervasive government control. With a view to improving efficiency and global competitiveness, liberalization policy and economic reforms were introduced at the outset of 1990s. Post liberalization period is marked by much higher productivity growth and increased contributions from the service sector and the skilled-based manufacturing industries (Bosworth et al, 2007 and Virmani, 2006), which have possibly increased the wage premium for higher education. It is believed that India still needs a higher pace of reforms towards competitive markets (Bajpai and Sachs, 1997 and Fischer, 2002). The resulting competitive factor prices that reflect the factor productivities would determine the returns to education. Our study compares the wages of skilled and unskilled labor between 1994 and 2002, over the decade of strong reform, with the respective productivities and also measures the potential of the economy in these two periods. We conduct a decomposition exercise in order to track the factors responsible for the wage–productivity differentials and observed–potential gap in the economy. Our observations of the study can be indications for the performance of Indian economy in the later periods. Tinbergen (1975) argued that opposing effects of technology (skilled labor demand) and education (skilled labor supply) determine the relative wage. Between 1987 and 1993, the returns to education in India increased significantly for middle and secondary levels, but not for primary and higher education (Bargain et al., 2006). The returns to middle and secondary level education fell over the next period 1993–2004, while the returns to higher education (college) grew (Asian Development Bank, 2007). Prior to 1993 (the pre-liberalization period) lack of demand for basic education could have been the reason for the high middle and secondary education premiums. Pradhan and Subramanian (2000), based on the MIMAP-India Survey (Pradhan and Roy, 2003) for 1994–95, argue that demand for education was low due to dim expected future earnings. Incomplete markets for higher education depress returns to higher education during this period. Sectoral skilled–unskilled wage differentials in India depict no clear pattern over time (see Table 1). The gap increased in ‘agriculture’, ‘heavy industries’, ‘transports and storage’, and ‘wholesale and retailed trade’, but decreased in the other sectors. From 1994 to 2002 the supply of skilled labor increased in all sectors relative to unskilled except in ‘construction’. Supply and demand of ‘education’ increased over this period. The relative wage of skilled to unskilled labor declined marginally from 2.95 in 1994 to 2.91 in 2002. We compare the relative wage with the relative productivity. The relative productivity signals the potentials differential between skilled and unskilled labor.The productivity and efficiency aspects of growth have attracted attention in the real business cycle (Kydland and Prescott, 1996 and Prescott, 1986) and endogenous growth (Lucas, 1988 and Romer, 1986) literatures. Our model is a dynamic extension of ten Raa and Mohnen's (2002), bringing in dynamic physical capital inefficiency and education inefficiencies. Following Negishi (1960), the efficiency frontier is determined subject to commodity, factor and trade constraints. The distance of the economy towards its frontier determines inefficiency. We make the frontier approach dynamic by incorporating human and physical capital formation. Education process in our model determines the returns to education, skill transformation and productivity of skilled labor. A dynamic framework seems a natural response to the inconclusive literature. Trade liberalization increased the skilled–unskilled wage gap in Latin America (Hanson and Harrison, 1999), but reduced it in East Asia (Wood, 1994 and Wood, 1999). Wage differentials between skilled and unskilled labor have been analyzed for both developed and developing countries (Katz and Autor, 1999, Williamson, 1999 and Wood, 1999). The explanations include skilled-biased technological change, international trade, and supply–demand factors (Berman et al., 1998, Katz et al., 1992, Kiley, 1999, Krusell et al., 1997, Learner, 1996 and Machin, 2002). In the Indian context, studies have shown that trade openness has an exacerbating effect on the skilled–unskilled wage gap (Beladi and Chakraborty, 2004, Dutta, 2004, Marjit and Acharyya, 2003 and Pradhan, 2002), but no clear picture has emerged as regards the effect of education on the skill premium during the period of liberalization. Pradhan (2002), with the help of a general equilibrium model, observed that even large increases in the access to education preserve the wage inequality, but an econometric study by Dutta (2005) found that despite the increase in the skill premium education helped reduce the wage gap. We will assess the contributions of various factors to the productivity–wage differentials. Productivity is determined at the frontier, which is beyond actual output due to four reasons: static inefficiency from domestic allocative inefficiency, i.e. domestic competition, static trade inefficiency, dynamic inefficiency from human capital formation and dynamic inefficiency from physical capital formation. The decomposition is based on an extended Fisher Index approach, to ensure path independence (which is an issue due to the non-linearity of our model). As the elasticity of substitution between skilled and unskilled labor is expected to influence wage differentials, we simulate with different values for this parameter. The rest of the paper is divided into four sections. The theoretical model is presented in Section 2. Section 3 analyzes the basic data set and calibrates. The model results are discussed in Section 4, while Section 5 concludes.

Given earlier, the 1994 Indian economy operated at 90% of its potential. The performance in 2002 dropped to 50%, taking into account the missed investment and education opportunities. Service sectors including education have significant potential to achieve higher growth. Both openness and education would push the productivity differential more than the observed wage differential in the first period and would reduce it in the end period. The intensity of the pressure would be greater under the low elasticity of substitution between skilled and unskilled labor. The data shows that the observed wage inequalities (skilled–unskilled wage ratio) for the two periods are 2.95 and 2.91. However, productivity inequalities (skilled–unskilled competitive wage ratio) are 6.93 and 1.76 in 1994 and 2002 respectively for the lower elasticity of substitution between skilled and unskilled labor, and 3.50 and 2.19 for the higher elasticity of substitution. Compared to its productivity, skilled labor is significantly underpaid in the initial period and overpaid in the end period. However unskilled labor is underpaid in both periods compared to its productivity. This indicates the existence of still large pool of undereducated Indians. The pattern of change in productivity relative to the wage for unskilled labor is sensitive to degree of elasticity of substitution. Human capital formation through education process is an important component for productivity–wage disparity. The optimum returns to education are 7.3% and 10% for a lower and higher degree elasticity of substitutions respectively. We conduct a decomposition exercise to capture the importance of various factors that influence the efficiency of the economy and the productivity–wage differential. Skilled labor benefits from free trade, but stands to lose from education and domestic competition. On the other hand, unskilled labor gains from domestic competition and human capital formation. However, wage–productivity differential for unskilled labor is sensitive to degree of elasticity of substitution. Unskilled labor loses from free trade under a lower elasticity of substitution, while gains in the case higher elasticity of substitution. The static allocative efficiency, i.e. the domestic competition is the only factor that contributes to the efficiency gain of the Indian economy. However, the main reasons for India to under-perform are its deviation from free trade potential, followed by failure to capture returns to education (human capital formation) and investment potential (physical capital formation) in the end period. We have already observed that there exists a higher potential returns to education. Failure to capture it has led to shortage of skilled labor and excessive wage inequality in the economy.