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India's Increasing Skill Premium: Role of Demand and Supply

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  • Azam, Mehtabul

    () (Oklahoma State University)

Abstract

The tertiary-secondary (college-high school) wage premium has been increasing in India over the past decade, but the increase differs across age groups. The increase in wage premium has been driven mostly by younger age groups, while older age groups have not experienced any significant increase. This paper uses the demand and supply model with imperfect substitution across age groups developed in Card and Lemieux (2001) to explain the uneven increase in the wage premium across age groups in India. The findings of this paper are that the increase in the wage premium has come mostly from demand shifts in favor of workers with a tertiary education. More importantly, the demand shifts occurred in both the 1980s and 1990s. Relative supply has played an important role not only determining the extent of increase in wage premium, but also its timing. The increase in relative supply of tertiary workers during 1983-1993 offset the demand shift, limiting the wage premium increase. But during 1993-1999, the growth rate of the relative supply of tertiary workers decelerated, while relative supply was virtually stagnant during 1999-2004. Both of these periods saw an increase in the wage premium as the countervailing supply shift was weak.

Suggested Citation

  • Azam, Mehtabul, 2009. "India's Increasing Skill Premium: Role of Demand and Supply," IZA Discussion Papers 3968, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp3968
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    References listed on IDEAS

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    Cited by:

    1. Vidya Atal & Kaushik Basu & John Gray & Travis Lee, 2010. "Literacy traps: Society-wide education and individual skill premia," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(1), pages 137-148.
    2. Azam, Mehtabul Azam & Blom, Andreas, 2008. "Progress in Participation in Tertiary Education in India from 1983 to 2004," Policy Research Working Paper Series 4793, The World Bank.
    3. Beretta, Silvio & Targetti Lenti, Renata, 2011. "“India in the Outsourcing/Offshoring Process: A Western Perspective” - L’India nel processo di outsourcing/offshoring: un punto di vista occidentale," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 64(3), pages 269-296.
    4. Caron, Justin & Fally, Thibault & Markusen, James R., 2017. "Per-Capita Income and the Demand for Skills," CEPR Discussion Papers 12077, C.E.P.R. Discussion Papers.
    5. Gunja Baranwal, 2016. "Links between foreign direct investment and human capital formation: Evidence from the manufacturing sector in India," WIDER Working Paper Series 123, World Institute for Development Economic Research (UNU-WIDER).
    6. Beladi, Hamid & Marjit, Sugata & Weiher, Kenneth, 2011. "An analysis of the demand for skill in a growing economy," Economic Modelling, Elsevier, vol. 28(4), pages 1471-1474, July.

    More about this item

    Keywords

    wage premium; India; secondary (high school); tertiary (college);

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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