Demographic Transition, Education, and Inequality in India

India is entering demographic transition much later than most developing countries, and will still be a relatively young nation twenty years from now. As the population ages and younger, better-educated cohorts enter the workforce. While the shift in labor supply composition towards skilled labor is likely to have positive effects on overall productivity, the evolution of returns to skills – and, consequently, inequality – will depend critically on changes in demand for these workers. To address these questions in a consistent framework, this paper links a computable general equilibrium (CGE) model of India with household survey data from India’s National Sample Survey Organization (NSSO) in a simple micro-simulation framework. The CGE model results demonstrate that the demographic transition and the rising share of skilled workers could have substantial growth benefits for the Indian economy, raising the average per capita GDP growth over the 2011-2030 period by nearly 0.5 percentage points with most of the benefit coming from increasing skills rather than the rising worker/population ratio.