IZA DP No. 3963: Changes in Wage Structure in Urban India 1983-2004: A Quantile Regression Decomposition
revised version published in: World Development, 2012, 40 (6), 1135-1150
This paper examines changes in the wage structure in urban India during the past two decades (1983-2004) across the entire wage distribution using the Machado and Mata (2005) decomposition approach. Real wages increased throughout the wage distribution during 1983-1993; however, it increased only in the upper half of the wage distribution during 1993-2004. Quantile regression analysis reveals that the effects of many covariates are not constant across the wage distribution. Moreover, increases in returns to covariates across the entire distribution are the driving forces behind the wage changes in both decades. Change in composition of the work force contributed positively to wage growth during 1983-1993, but negatively during 1993-2004. Finally, while workers with all education levels experienced an increase in returns of roughly the same magnitude during 1983-1993, the increase in returns is much higher for workers with tertiary and secondary education during 1993-2004. The inequality increasing effects of tertiary education suggests that wage inequality in urban India may increase further in the near future as more workers get tertiary education.