Impact of Technology on Wage Inequality: Evidence from Indian Manufacturing under Globalisation

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Please cite the paper as:
&lquo;Kiran Kumar Kakarlapudi, (2013), Impact of Technology on Wage Inequality: Evidence from Indian Manufacturing under Globalisation, World Economics Association (WEA) Conferences, No. 3 2013, Conference on the Inequalities in Asia, 27th May to 12th July 2013&rquo;

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Abstract

The policy reforms in India initiated in the early 1990s have brought phenomenal changes in the economy’s growth and development process. The economy during this period has experienced high growth rates on the one hand and increased inequalities on the other hand. A prominent strand of literature argues that income inequalities are aggravated due to an increase in the earning opportunities of skilled workers over unskilled workers due to increased technology. Hence, the present paper is an attempt to examine the impact of various components of technology accessed through external as well as internal sources on changing wage structure in the era of globalization. The present study has been carried out using two data sources ASI and CMIE prowess during 1992-93 to 2005-06. From an analysis of the trends and patterns of employment and wages, it is observed that the wage share of skilled workers has been increasing during liberalisation period across all the manufacturing industries. Hence, to examine the wage inequality empirically, an econometric analysis of panel data has been carried out using a cost function framework. The results showed that technology intensity in general has a positive and significant effect on wage inequality in total manufacturing, high-tech and medium-tech industries. Further, it is found that while domestic technology elements have a positive effect on wage inequality in total manufacturing and high-tech industries; imported technology is significant in low-tech industries. While imported capital goods are significantly affecting the demand for skilled workers in low tech industries, domestic capital goods are contributing for the rise in skill demand in total manufacturing and high-tech industries. Thus, the study infers that domestic technology in general has been biased towards skilled workers there by contributing to increase in their wages.


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