Caste Discrimination in Urban India

Does caste discrimination express itself in terms of difference in salaries and wages in urban India? I am afraid the answer is a qualified yes; qualification being it seems to depend on the level of aggregation we are addressing the issue. There seems to be some evidence for discrmination in the overall urban sector but little or no evidence in software and call industry in particular.

Madheswaran and Attewell use National Sample Survey (NSS) data and find that employees from SC/STs in urban salaried jobs in 1999-2000 received wages that were about 30 per cent lower on average than those of other castes. About 15 per cent of this differential could not be explained by the measures of education and work experience available in the NSS data. Of course, how much of this unexplained differential acutally can serve as an evidence of discrimination will depend on how finer the measures of education and work experience are in the NSS data.

In yet another paper Banerjee and his coauthors find less dicrimination in the call center industry and no discrimination in the software industry. So now the interesting question is why does discrimination persisit in some industries and not in others. It would be intersting to see a model where employers choose to discrminate in equilibrium conditional on some factors.

Banerjee, A, M Bertrand, S Dutta and S Mullainathan(2007): ‘Caste and Religion in India’s ‘New Economy’:Evidence from a Field Experiment on Labour Market Discrimination in Delhi’, Mimeo.

S Madheswaran & Paul Attewell (2007), Caste Discrimination in the Indian Urban Labour Market: Evidence from the National Sample Survey, Economic and Political Weekly, VOL 42 No. 41 October 13 - October 19.

Returns to Education in India

This paper studies the determinants of personal income, including the returns to education. In the process it estimates how incomes are affected by characteristics such as gender, caste, language, etc. Using a maximum likelihood probability model, private returns to education are estimated; it emerges that greater levels of education increase both the likelihood of being employed as well as the income earned from work. However, the returns from elementary (primary and middle) education are quite low. Also, ceteris paribus, women, lower social groups, rural residents, non-English speakers have both significantly lower incomes and a lower likelihood of being employed. The results indicate that quality of education delivery and ensuring that the child remains in school should form important elements of education policy.


Bhandari L, Bordoloi M (2006), Income Differentials and Returns to Education, Economic and Political Weekly, VOL 41 No. 36 September 09 - September 15.

Education and Growth

The relationship between education growth and economic growth is a bit puzzling. More education does seem to benefit the individual, but it may not necessarily translate into increasing per capita incomes. So how do we resolve this micro-macro paradox?

As William Easterly argues in his book The Elusive Quest for Growth, its all about incentives. And so do in a way, Playforth & Schündeln who have worked with Indian data. They think that government is the culprit!

They hypothesize that educated people find privately rewarding jobs (which would contribute to the high estimates of returns to education at the micro level) in a sector in which social returns are low relative to the private returns (which would contribute to small or negative coefficients
on education growth in regressions at the macro level), namely the government sector.


Private versus Social Returns to Human Capital: Education and Economic Growth in India by John Playforth & Matthias Schündeln.

Dismantling the License Raj

What was the effect of dismantling the license raj? A very pertinent question in which the proponents of liberalization as well as the critiques would be equally interested in!

Aghion et.al., try to answer this question in a very interesting difference in difference estimation framework. The main argument of the paper is that the response to the ending of the license raj would be different in different states as they differ in terms of their institutional set up.

One of the institutional dimension on which states differ is the labor market regulation. There are some states which have more pro- labor regulations, some which have pro-employer regulations and a few which can be categorized as neutral. The main finding of the paper is that output rose more in pro-employer states than it did in pro-worker states in response to same delicensing reform. This result stands up to several robustness checks and the delicense-labor regulation interaction coefficient is similar in size and significance across a range of specifications.

This paper could not have come out at a more appropriate time when the debates about the effect of labor regulation on industrial performance abound and have important implications for understanding India's trade competitiveness vis-a-vis China. Similarly it also sheds light on what may be one of the important factors driving the differences in regional growth rates.

Reference:

Aghion P, Burgess R, Redding S, & Zilibotti F (forthcoming), "The Unequal Effects of Liberalization: Evidence from Dismantling License Raj in India", American Economic Review.

Affirmative Action in Education

Abstract:

Many countries mandate affirmative action in university admissions for traditionally disadvantaged groups. Little is known about either the efficacy or costs of these programs. This paper examines affirmative action in engineering colleges in India for "lower-caste" groups. We find that it successfully targets the financially disadvantaged: the marginal upper-caste applicant comes from a more advantaged background than the marginal lower-caste applicant who displaces him. Despite much lower entrance exam scores, the marginal lower-caste entrant does benefit: we find a strong, positive economic return to admission. These findings contradict common arguments against affirmative action: that it is only relevant for richer lower-caste members, or that those who are admitted are too unprepared to benefit from the education. However, these benefits come at a cost. Our point estimates suggest that the marginal upper-caste entrant enjoys nearly twice the earnings level gain as the marginal lower-caste entrant. This finding illustrates the program's redistributive nature: it benefits the poor, but costs resources in absolute terms. One reason for this lower level gain is that a smaller fraction of lower-caste admits end up employed in engineering or advanced technical jobs. Finally, we find no evidence that the marginal upper-caste applicant who is rejected due to the policy ends up with more negative attitudes towards lower castes or towards affirmative action programs. On the other hand, there is some weak evidence that the marginal lower-caste admits become stronger supporters of affirmative action programs.

Reference:

Bertrand M, Hanna R, & Mullainathan S (2008), Affirmative Action in Education: Evidence From Engineering College Admissions in India, NBER Working Paper 13926.

Women as Policy Makers

I am sure many of us must have watched movies where the theme was women's reservation. Though, most of them turn out to be a 'cliche', they at least bring out the complexities involved in implementing such policies. One can also occasionally find journalistic write ups on the issue. However, all said and done, most of these articles turn out to be anecdotal at best and unfortunately movies cannot constitute any substantive evidence either! This is where this article becomes important.

Do reservations for women at the Panchayat level work? This is the focus of the article. The authors use political reservations for women in India to study the impact of women's leadership on policy decisions. They use data collected from 256 village councils from West Bengal and Rajasthan and compare the type of public goods provided in reserved and unreserved village councils.

The authors find that women elected as leaders under the reservation policy invest more in the public goods more closely related to women's concerns: drinking water and roads in West Bengal and drinking water in Rajasthan. They invest less in public goods that are more closely linked to men's concerns: education in West Bengal and roads in Rajasthan. These results seem to largely attributable to the gender of the Pradhan as they are unaffected by other characteristics of Pradhan.

According to the authors, these results contradict the simple intuition behind the Downsian model and the idea that political decisions are the outcomes of a Coasian bargaining process. In both of these views of the world, the fact that a woman is the head of the Gram Panchayat should not influence policy decisions. These results also suggest that direct manipulation of the identity of the policy maker can have important effects on policy.

It will be interesting to carry out similar type of analysis in other states and see what emerges. This is a very pertinent issue, not only from the point of view of gender empowerment but as noted by authors, also from the design of decentralized political institutions and their efficacy point of view.

Reference:
Chattopadhyay R & Duflo E (2004), "Women as Policy Makers: Evidence from a Randomized Policy Experiment in India", Econometrica, 72, 5, 1409-1443.

Land Reforms

If any body has been even near CESP, JNU, he or she cannot miss one simple prognosis for almost all of India's economic ills- lack of land reforms! I think Tim Besley & Robin Burgess definitely did not miss it. In a very interesting article, they undertake the task of econometrically investigating the relationship between land reforms, poverty and growth in India. They find a robust link between land reform and poverty reduction. However, they argue that a closer scrutiny reveals that, in an Indian context, this is due primarily to land reforms that change the terms of land contracts rather than actually redistributing land.
Some points worth noting:

1. In an IV regression, they find that Congress and soft left decrease the probability of enacting land reform legislation, while hard left exerts a positive influence and Hindu parties are insignificant. If you think this is a cudos for left governments, note that the overall positive influence of hard left parties seems to originate principally through strong positive effect on the passage of land ceiling legislation and the authors do not find any evidence that such land reforms reduce poverty.
2. Land reforms have a positive significant effect on agricultural wages, though this effect primarily comes from abolition of intermediaries.
3. Tenancy reform has negative impact on agricultural output while land consolidation has the opposite effect.

Thus, according to the authors, although the effects on poverty are likely to have been greater if large scale redistribution of land had been achieved, the results are interesting as they suggest that partial, second best reforms which mainly affect production relations in agriculture can play a significant role in reducing rural poverty. Comparing the effect of land reforms on poverty with effect of changes in per capita income, the authors find that implementing a land reform has a similar effect on poverty reduction to a 10 percent increase in per capita income, or around four to five years growth at all-India average growth rate over period (1958-1992).

The article also has a good summary of the kind of land reforms undertaken by various states till now.


Besley Timothy & Burgess Robin (2000), Land Reform, Poverty Reduction, and Growth: Evidence from India, The Quarterly Journal of Economics, May.