Economic Liberalization and Wage Inequality in India

SummaryWe investigate India’s widening skill wage gap and narrowing gender wage differential during the two decades that coincide with the economic liberalization in the country. Using the nonparametric methodology developed by Katz and Murphy [Katz, L. F., & Murphy, K. M. (1992). Changes in relative wages, 1963–87: supply and demand factors. Quarterly Journal of Economics, 107(1), 35–78], we find that relative demand shifts contributed to relative wage shifts and that increases in the demand for skilled labor were mostly due to skill upgrading within industries. In assessing the contribution of external sector reforms to demand for skilled labor, we find that international trade-in manufactures benefited skilled men but hurt skilled women, whereas outsourcing of services generated a demand for both female and male college graduates.