Skilled-unskilled wage gap without discrimination – the case of India

Both skilled and unskilled workers are employed formally and informally in developing economies. However, workers employed informally are often discriminated – they receive lower returns to their individual characteristics compared to those employed formally. What would be the skilled-unskilled wage gap if there were no such discrimination in the labour market? We show that the with-discrimination wage gap is more if the unskilled workers are discriminated more in their employment-share weighted terms. We propose a methodology based on Oaxaca-Blinder decomposition technique to estimate the without-discrimination wage gap, apply it to four rounds of Indian NSSO employment data and find that (i) both types of workers face discrimination, and (ii) the without-discrimination wage gap is significantly less. We also check for the possibility of female workers getting discriminated more in informal employment.