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Wages & income mobility in Indian labour market: the post-reform scenario

Ray, Jhilam and Majumder, Rajarshi (2012): Wages & income mobility in Indian labour market: the post-reform scenario.

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Abstract

Improvement in the living conditions of workers is an important objective of development planners and India is no exception. The crux of this lies in returns from work, or wage level. While non-wage aspects are important, wage level is the most pertinent indicator of condition of workers and increase in real wage level signals improvement in condition of labour market. Though most studies compare wages at different points of time from cross-sectional data, they provide an aggregative view without control for variables that are particular to the household/family. Contrary to this, intergenerational mobility in wage income following life cycle theory observes direction & quantum of movement of workers’ wage relative to their parents, therefore filtering out household characteristics, and providing better measure of workers’ conditions and its trends over time. Another important aspect that can be explored by looking at intergenerational wage mobility is related to the issue of equality. Stickiness of wage income with respect to parental income leads to persistence of income inequality across generations and questions the notional objective of equity in opportunity and openness of any society. Historically some groups are belonging to lower strata of society due to economic and or social discrimination leading to lower income and asset possession as well as capability formation which excluded them from the process of capability formation and income-earning. This exclusion and backwardness surpass the boundary of the current generation and spills over to successive generations as well. As a result Intergenerational Mobility is very low among backward classes. Also of importance is to enquire whether economic liberalization and structural reforms have had any impact on the intergenerational income mobility – has mobility today more than that in the 1990s? In this paper we explore these issues, throwing light on a hitherto neglected area of research in Indian labour market studies – intergenerational income mobility, desegregated across social classes and comparing pre-reform and post-reform results. We observe that wage income mobility between generations have been generally low in India. Though such stickiness over generations is declining over time, especially in the post-reform period, stickiness is still higher for excluded social classes. Improvement over the last decade has occurred mainly for the scheduled castes and not for the tribals who are much more spatially isolated and hence outside the orbit of economic dynamics.

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