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Wage-Productivity Differentials and Indian Economic Efficiency

In: Efficiency and Input-Output Analyses Theory and Applications

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  • Amarendra Sahoo
  • Thijs ten Raa

Abstract

A frontier-general equilibrium analysis with skill transformation evaluates the productivities of skilled and unskilled labour and potential of the Indian economy. We compare the wages of skilled and unskilled labour 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 labour supply is endogenous in the model. Compared to its productivity, skilled labour is underpaid in the initial period and overpaid in the second period. Unskilled labour is underpaid in both periods. A decomposition exercise shows that skilled labour 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.

Suggested Citation

  • Amarendra Sahoo & Thijs ten Raa, 2021. "Wage-Productivity Differentials and Indian Economic Efficiency," World Scientific Book Chapters, in: Efficiency and Input-Output Analyses Theory and Applications, chapter 15, pages 243-269, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811233296_0015
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    Cited by:

    1. Mishra, Vinod & Smyth, Russell, 2015. "Estimating returns to schooling in urban China using conventional and heteroskedasticity-based instruments," Economic Modelling, Elsevier, vol. 47(C), pages 166-173.

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    More about this item

    Keywords

    Efficiency; Input-Output; Benchmarking; Performance Measurement; TFP; Environmental Policy Analysis; Mark-ups; Consumer Surplus; CES Demand; Linkages; Heckscher-Ohlin Trade Flows; Leontief;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D - Microeconomics

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