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Minimum Wages and Changing Wage Inequality in India

Author

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  • Khurana, Saloni

    (Indian Institute of Foreign Trade (IIFT))

  • Mahajan, Kanika

    (Ashoka University)

  • Sen, Kunal

    (University of Manchester)

Abstract

Using nationally representative data on employment and earnings, this paper documents a fall in wage inequality in India over the last two decades. It then examines the role played by increasing minimum wages for the lowest skilled workers in India in contributing to the observed decline. Exploiting regional variation in changes in minimum wages over time in the country, we find that an increase in minimum wages by one percent led to an increase in wages for workers in the lowest quintile by 0.17%. This effect is smaller at upper wage quintiles and insignicant for the highest wage quintile. Counterfactual wage estimations show that the increase in minimum wages explains 26% of the decline in wage inequality in India during 1999-2018. These findings underscore the important role played by rising minimum wages in reducing wage disparities in India.

Suggested Citation

  • Khurana, Saloni & Mahajan, Kanika & Sen, Kunal, 2023. "Minimum Wages and Changing Wage Inequality in India," IZA Discussion Papers 16600, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16600
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    2. Alzate,David & Eliana Carranza & Duran-Franch,Joana & Truman G. Packard & Celina Proffen, 2024. "How Regulations Impact the Labor Market : A Review of the Literatures on Product and Labor Market Regulations," Policy Research Working Paper Series 10961, The World Bank.

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    More about this item

    Keywords

    minimum wages; wage inequality; India;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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