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Skill sorting and production chains : evidence from India

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  • Asuyama, Yoko

Abstract

This study proposes a new mechanism that explains skill-sorting patterns and skill wage differentials across industries based on the length of the industry's production chain. A simple simultaneous production model shows that when the quality of intermediate inputs deteriorates rapidly along the production chains, high-skilled individuals choose to work in industries with shorter production chains because of higher returns to skill. I empirically confirm this skill-sorting pattern and these inter-industry skill wage differentials in India, where the quality of intermediate inputs is likely to degrade rapidly because of the high number of unskilled laborers, poor infrastructure, and less-advantaged technology. The results remain robust even when considering selection bias, alternative reasons for inter-industry skill wage differentials, and a different period. The results of this study have important implications when considering countries' industrial development patterns.

Suggested Citation

  • Asuyama, Yoko, 2015. "Skill sorting and production chains : evidence from India," IDE Discussion Papers 545, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper545
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    Cited by:

    1. Yoko Asuyama & Hideaki Goto, 2016. "Negative Skill Sorting across Production Chains," Working Papers EMS_2016_04, Research Institute, International University of Japan.
    2. Asuyama, Yoko & Goto, Hideaki, 2016. "Negative skill sorting across production chains," IDE Discussion Papers 557, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    3. Asuyama, Yoko, 2016. "Delegation to workers across countries and industries : social capital and coordination needs matter," IDE Discussion Papers 620, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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    More about this item

    Keywords

    India; Labor economics; Labor productivity; Labor market; Wages; Human resources; Economic development; Input quality; Production chains; Return to skill; Skill sorting; Skill wage premium;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education

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