Liberalization and the Changing Inter-industry Wage Structure of the Organized Manufacturing Sector in India, 1973/74–2003/04

This paper examines the inter-industry wage structure of the organized manufacturing sector in India for the period 1973/74–2003/04 by estimating the growth of average real wages for production workers by industry. Using wage data on 51 three-digit industries, our estimation procedure obtains estimates of growth of real wages per worker that are wholly deterministic in nature by accounting for any potential structural break(s) associated with the reforms. Our paper identifies three distinct regimes—pre-reform, first phase reforms and second phase reforms, over which real wages have grown at varying rates for each industry. Our findings suggest that the inter-industry wage differences have become more pronounced in the post-reform periods. The paper provides new evidence from India on the need to consider seriously the hypothesis that industry affiliation is potentially an important determinant of wages when studying any relationship between reforms and wages.