Being a reliable and important indicator of inequality, identifying earnings gap and its causal factors may lead us to the core of the inequality problem, which is much severe in a developing economy than a developed one. India is a classic example of a dual economy with rapid and abrupt urbanization as majority of laborers are engaged in non-agricultural activities (65 per cent), but these activities are based in rural areas. For a (rich in diversity) country like India, it is not only sex and race but also the vicious caste system which is relevant for inequality literature. The caste system in India is complex in nature and hierarchy is (historically) occupation-specific. The main castes can be divided into 3,000 sub-castes among Hindus, which is the major religion of the country while Muslim is the second major. This study aims to identify whether discrimination is one of the major factors shaping unequal labor market outcomes with a human capital approach. It uses the 68
th round (2011-12) of National Sample Survey’s (NSS) employment and unemployment data at individual-level, and estimates earnings gap for working-age population (18-60 years aged). The survey reports weekly earnings along with daily work intensity scores of laborers, from which it is easy to transform it into monthly earnings. For international readers, earnings in INR has been expressed in USD using average exchange rate value for the same year. Indian inequality researches mainly concentrate on the poverty and sector-specific differential aspects, while few of them focus on gender and caste, separately. NSS categorizes information by religions and social groups separately, from where I classified 69,583 observations according to six socioreligious categories: Scheduled Tribes (STs), Scheduled Castes (SCs), Other Backward Classes (OBCs), Other Hindus, Muslims and Others. Hence, this study could be a contribution to the literature as gender and socio-religions both are considered. For an example, females earn almost sixty dollars less than male workers on an average; and, for either gender- STs, SCs and Muslims are the most vulnerable groups.
First, the relationship between earnings and human capital is estimated following Mincerian earnings theory which uses the Ordinary Least Squares (OLS) estimation with robust standard errors. Then earnings gap decomposition techniques are used to estimate different components of these gaps. Specifically, the study uses two decomposition methods: a parametric (Blinder-Oaxaca with Heckman selection) and a one-to-many characteristics matching nonparametric (Ñopo) decomposition. Both methods confirm major role of discrimination on the gender inequality in earnings. While the parametric decomposition suggests that most of the socioreligious gaps in earnings are due to differential characteristics in human capital endowment, the latter technique almost evenly attribute inequality in earnings to (continued historical) discrimination and the endowment. To reduce discriminatory practices in labor market, any democratic government should focus on narrowing the endowment differentials which make the employers prejudiced against certain groups of workers (Becker, 1957). This study can act as a wakeup call for the Indian government to promote more empowerment to vulnerable groups and gender equality.
