Wage Differentials in Urban Labour Markets for Regular Salaried Workers: An Analysis for Socio-Religious Groups in India

Inclusive growth and development can only be achieved when all the sections of society participate in the process. The presence of social and economic stratification leads to market inefficiency, which is an impediment to equitable economic development for all. Literature suggests the presence of discrimination and differential wages for people based on their group identities, such as caste, gender and religion in India. However, scant literature is available on India's religion-based wage differential and discrimination. Education is positively linked with economic growth and income inequality because education leads to higher wages. But discrimination in terms of wage differential among socio-religious groups (SRGs) may lead to discouragement from enhancing human capital skills by those who got discrimination against. Against this backdrop, this paper is an investigation towards wage differentials of Muslim workers in urban labour markets in India compared to other socio-religious groups. The main source of this paper is the Periodic Labour Force Survey (PLFS) 2019–20, National Statistical Office (NSO). To analyse the factors which determine the earnings/wages of regular salaried male workers in urban India, we estimated the Mincerian human capital investment model by using a natural log of average wages with some predictors, such as age, age squared, general education levels and technical education, to test the relationship and significance levels of the regression. Six combinations of different socio-religious groups are considered for wage differentials and wage decomposition. Further, this paper investigates the reasons for wage differentials between different groups by using wage decomposition methods. Results show that Muslims got the lowest average daily earnings compared to other SRGs, lower even from historically disadvantaged groups such as Hindu Scheduled Castes (SC)/Scheduled Tribes (ST). Further it is found that wage differentials are mostly because of the factor endowments such as quality education and skills but also due to unexplained factors such as discrimination and prejudice prevailed in the labour market due to workers's identity. The evidence suggests that compared to other SRGs, Other Backward Classes (OBC) among Muslim workers face double burden of disadvantages in labour markets. On the one hand they face wage differentials due to lack of important factor such as quality education, skills, social network and professional networking, on the other side they face prejudice because of religious background and caste hierarchy in India. This further results in their discouragement in investment in skill enhancement and quality education. It is suggested that policymakers should understand and acknowledge the caste diversity among Muslims. Policies should be more specific to benefit the OBC in Muslims by enhancing educational opportunities to them, skill development programmes and effective anti-discriminatory policies in labour markets.