Publication: India's Increasing Skill Premium : Role of Demand and Supply
Abstract
Using micro data for India from 1983 to 2005, this paper finds that the tertiary (college)-secondary (high school) wage premium has been increasing in India over the past decade and that this increase differs across age groups. The increase in wage premiums has been driven mostly by younger age groups while older age groups have not experienced any significant increase. Using a demand and supply model with imperfect substitution across age groups (developed in Card and Lemieux, 2001), this paper demonstrates that workers are not perfect substitutes across age groups. The paper finds that the increase in the wage premium has come mostly from demand shifts in favor of workers with a tertiary education. More importantly, the growth rate of demand for tertiary educated workers relative to secondary educated workers was fairly stable in the 1980s and the 1990s. However, the relative supply played an important role not only in determining the extent of increase in wage premium, but also its timing. The increase in relative supply of tertiary workers during 1983-1993 negated the demand shift; as a result, the wage premium did not increase much. But during 1993-1999, the growth rate of the relative supply of tertiary workers decelerated, while relative supply became virtually stagnant during 1999-2004. Both these periods saw an increase in the wage premium as the countervailing supply shift was weak.
Link to Data Set
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Citations
Collections
Related items
Showing items related by metadata.
Publication Changes in Returns to Education in Latin America : The Role of Demand and Supply of Skills(2010)Using micro data for the urban areas of Argentina, Brazil, Chile, Colombia, and Mexico, the authors document trends in men's returns to education during the 1980s and the 1990s and estimate the role of supply and demand factors in explaining the changes in skill premia. They propose a model of demand for skills with three production inputs, corresponding to workers with primary-, secondary-, and university-level education. Further, the authors demonstrate that an unprecedented rise in the supply of workers having completed secondary-level education depressed their wages relative to workers with primary-level education throughout Latin America. This supply shift was compounded by a generalized shift in the demand for workers with tertiary education.Publication Skills for the Labor Market in Indonesia : Trends in Demand, Gaps, and Supply(World Bank, 2011)Creating jobs and increasing productivity are key concerns for policy makers across the globe. For East Asian countries seeking to reduce poverty, expanding employment and productivity is at the top of the agenda. This book is a comprehensive look at the demand and supply of skills in Indonesia how skills have changed, how they will continue to evolve, and how the education and training sectors can be improved to be more responsive and relevant to the needs of the labor market and the economy as a whole. Using an innovative firm survey, the authors shed light on the functional skills that workers must possess to be employable and to support firms' competitiveness and productivity. They also assess the role of the education and training systems in providing those skills. Although this book focuses specifically on Indonesia, its methodologies, messages, and analysis will be instructive for researchers and policy makers who shape the delivery of education and training in other middle-income countries around the world.Publication Educational Upgrading and Returns to Skills in Latin America : Evidence from a Supply-Demand Framework, 1990–2010(2011-12-01)It has been argued that a factor behind the decline in income inequality in Latin America in the 2000s was the educational upgrading of its labor force. Between 1990 and 2010, the proportion of the labor force in the region with at least secondary education increased from 40 to 60 percent. Concurrently, returns to secondary education completion fell throughout the past two decades, while the 2000s saw a reversal in the increase in the returns to tertiary education experienced in the 1990s. This paper studies the evolution of wage differentials and the trends in the supply of workers by educational level for 16 Latin American countries between 1990 and 2000. The analysis estimates the relative contribution of supply and demand factors behind recent trends in skill premia for tertiary and secondary educated workers. Supply-side factors seem to have limited explanatory power relative to demand-side factors, and are only relevant to explain part of the fall in wage premia for high-school graduates. Although there is significant heterogeneity in individual country experiences, on average the trend reversal in labor demand in the 2000s can be partially attributed to the recent boom in commodity prices that could favor the unskilled (non-tertiary educated) workforce, although employment patterns by sector suggest that other within-sector forces are also at play, such as technological diffusion or skill mismatches that may reduce the labor productivity of highly-educated workers.Publication Industry and Skill Wage Premiums in East Asia(2010-07-01)This paper focuses on the estimation of skill/industry premiums and labor force composition at the national and sector levels in seven East Asian countries with the objective of providing a comprehensive analysis of trends in demand for skills in the region. The paper addresses the following questions: Are there converging or diverging trends in the region regarding the evolution of skill premiums and labor force composition? Are changes in skill premiums generalized or industry-related? How have industry premiums evolved? The analysis uses labor and household surveys going back at least 10 years. The main trends emerging from the analysis are: (a) increasing proportions of skilled/educated workers over the long run across the region; (b) generally increasing demand for skills in the region; (c) the service sector has become the most important driver of demand for skills for all countries (except Thailand); (d) countries can be broadly categorized into three groups in relation to trends and patterns of demand for skills (Indonesia, Philippines, and Thailand; Vietnam and China; and Cambodia and Mongolia); and (e) industry premiums have increased in three countries of the region (Philippines, Thailand, and Cambodia). These trends point to several policy implications, including that governments should focus on policies promoting access to education to address the increasing demand for skills and/or persistent skill shortages; support general rather than specific curricula given broad-based increases in skill premiums in most countries; better tailor curriculum design and content and pedagogical approaches to the needs of the service sector; and target some social protection programs to unskilled workers to protect them from the "unequalizing" impact of education.Publication Export Liberalization, Job Creation and the Skill Premium : Evidence from the U.S.-Vietnam Bilateral Trade Agreement(World Bank, Washington, DC, 2013-04)This paper explores how the expansion of labor-intensive manufacturing exports resulting from the United States-Vietnam Bilateral Trade Agreement in 2001 translated into wages of skilled and unskilled workers and the skill premium in Vietnam through the channel of labor demand. In order to isolate the impacts of trade shock from the effects of other market-oriented reforms, a strategy of exploiting the regional variation in difference in exposure to trade is employed. Using the data on panel individuals from the Vietnam Household Living Standards Surveys of 2002 and 2004, and addressing the issue of endogeneity, the results confirm the existence of a Stolper-Samuelson type effect. That is, those provinces more exposed to the increase in exports experienced relatively larger wage growth for unskilled workers and a decline of (or a smaller increase in) the relative wages of skilled and unskilled workers. During the period 2000-2004, the skill premium increased for Vietnam's economy as a whole in the sample of panel individuals. Thus, the Stolper-Samuelson type effect appears to have mitigated but did not outweigh the impacts of other factors that contributed to the rise in the skill premium.
Users also downloaded
Showing related downloaded files
No results found.