Determinants of inter - industry wage structure in India

Abstract

This paper deals with an analysis of the main factors explaining the inter-industry wage differentials in manufacturing sector of the Indian economy. It examines the basic theoretical framework which can provide a satisfactory explanation of the inter-industry wage structure. Taking the cross-section data on the two-digit level manufacturing industries for two years 1960 and 1964, the regression technique is applied to test alternative models based on the expected ability to pay and the technology hypotheses. The major finding of the study is that the skill-mix and productivity are the two main determinants of inter-industry wage structure in India. The policy implication of this finding is that if a more rational wage structure is to be evolved in the organised manufacturing sector in India, it can be done most effectively by following the policy of modernisation and rationalisation of the existing low productivity industries while envisaging rapid development of the industrial sector during the course of the next decade.