Wednesday, January 9, 2013

14 January 2013: Stochastic Convergence of Real Wages in Indian Manufacturing- Time Series Evidence with two structural breaks

Homagni Choudhury
Aberystwyth University

The study examines time series data on real wages per worker for production workers for 51 industries from the organized manufacturing sector in India for the period 1973-2003 to determine if inter-industry wages are stochastically converging.  The study uses  a minimum Lagrange Multiplier (LM) unit root test developed by Lee & Strazicich (2003, 2004) that endogenously determines two/one structural breaks in intercept and slope. The findings provide evidence to support that real wages per worker are stochastically converging between industries in India. Given the heterogeneous characteristics of industries, “stochastic convergence” implies real wages between industries converge to an industry-specific “compensating differential” i.e. “stochastic convergence” is consistent with “conditional convergence”. The one/two breaks in relative real wages identified for each industry coincide with India’s two distinct phases of reforms- 1980s weak reforms and 1990s strong reforms. To our knowledge, this is one of the first attempts to use a “stochastic convergence” framework to address inter-industry wage structure. Our findings provide new evidence from India and show that efficiency wages due to rent-sharing is potentially an important explanation for inter-industry wage differences in India, whose role seems to have declined over the reforms period.

Date: January 14, 2013
Time: 11:30 A.M.

ICRIER Conference Room,
Core 6A, 4th Floor,
India Habitat Centre, Lodi Road,
New Delhi – 110 003(INDIA)


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