Effect of Technology on Wage Inequality between Skilled and Unskilled Labour

Evidence from the Indian Manufacturing Sector

Abstract

This paper investigates the effect of technology on wage inequality after the implementation of the Make In India campaign in 2014. I do this by testing the Skill Biased Technical Change hypothesis in a recent Indian setting. The skill-wage share equation is estimated for a panel of 76 manufacturing industries using long and short time differencing, covering a period from 2010-2107.  I also use a fixed effect model to estimate the effect of the same. The increase in skill wage share-if any is decomposed into within and between industry, with the within part attributable to skill biased technical change.The results suggest a positive effect of change in output (scale effect) and a weak but positive effect of import intensity on wage share of skilled workers. I find that the presence of Skill Biased Technical Change remains uncertain.