The Changing Inter-Industry Wage Structure of the Organised Manufacturing Sector in India, 1973-74 to 2003-04

This study examines the inter-industry wage structure of the organised manufacturing sector in India for the period 1973-74 to 2003-04 by estimating the growth of average real wages for production workers by industry. In order to estimate the growth rates, the study adopts a methodological framework that differs from other studies in that the time series properties of the concerned variables are closely considered in order to obtain meaningful estimates of growth that are unbiased and (asymptotically) efficient. Using wage data on 51 manufacturing industries at three digit level of the National Industrial Classification 1998 (India), our estimation procedure obtains estimates of growth of real wages per worker that are deterministic in nature by accounting for any potential structural break(s). Our findings show that the inter-industry wage structure in India has changed a lot in the period 1973-74 to 2003-04 and that it provides some evidence that the inter-industry wage differences have become more pronounced in the post-reforms period. Thus this paper provides new evidence from India on the need to consider the hypothesis that industry affiliation is potentially an important determinant of wages when studying any relationship between reforms and wages.

Growth Rate Estimation in the presence of Unit Roots

This study addresses the issue of the presence of a unit root on the growth rate estimation by the least-squares approach. We argue that when the log of a variable contains a unit root, i.e., it is not stationary then the growth rate estimate from the log-linear trend model is not a valid representation of the actual growth of the series. In fact, under such a situation, we show that the growth of the series is the cumulative impact of a stochastic process. As such the growth estimate from such a model is just a spurious representation of the actual growth of the series, which we refer to as a “pseudo growth rate”. Hence such an estimate should be interpreted with caution. On the other hand, we highlight that the statistical representation of a series as containing a unit root is not easy to separate from an alternative description which represents the series as fundamentally deterministic (no unit root) but containing a structural break. In search of a way around this, our study presents a survey of both the theoretical and empirical literature on unit root tests that takes into account possible structural breaks. We show that when a series is trendstationary with breaks, it is possible to use the log-linear trend model to obtain well defined estimates of growth rates for sub-periods which are valid representations of the actual growth of the series. Finally, to highlight the above issues, we carry out an empirical application whereby we estimate meaningful growth rates of real wages per worker for 51 industries from the organised manufacturing sector in India for the period 1973-2003, which are not only unbiased but also asymptotically efficient. We use these growth rate estimates to highlight the evolving inter-industry wage structure in India.

Marriage as a Rat Race: Noisy Pre-Marital Investments with Assortative Matching

We study the incentive to invest to improve marriage prospects, in a frictionless marriage market with non-transferable utility. Stochastic returns to investment eliminate the multiplicity of equilibria in models with deterministic returns, and a unique equilibrium exists under reasonable conditions. Equilibrium investment is efficient when the sexes are symmetric. However, when there is any asymmetry, including an unbalanced sex ratio, investments are generically excessive. For example, if there is an excess of boys, then there is parental over-investment in boys and under-investment in girls, and total investment will be excessive.

Pecuniary Externality through Credit Constraints: Two Examples without Uncertainty

This paper is a contribution to the growing literature on constrained inefficiencies in economies with financial frictions. The purpose is to present two simple examples, inspired by the stochastic models in Gersbach-Rochet (2012) and Lorenzoni (2008), of deterministic environments in which such inefficiencies arise through credit constraints. Common to both examples is a pecuniary externality, which operates through an asset price. In the second example, a simple transfer between two groups of agents can bring about a Pareto improvement. In a first best economy, there are no pecuniary externalities because marginal productivities are equalised. But when agents face credit constraints, there is a wedge between their marginal productivities and those of the non-credit-constrained agents. The wedge is the source of the pecuniary externality: economies with these kinds of imperfections in credit markets are not second-best efficient. This is akin to the constrained inefficiency of an economy with incomplete markets, as in Geanakoplos and Polemarchakis (1986).