5452015-11-01 , Institute of Developing Economies (IDE-JETRO)
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.
JEL:J24 - Human Capital; JEL:J31 - Wage Level and Structure;etc. JEL:L23 - Organization of Production JEL:O15 - Human Resources; JEL:I25 - Education and Economic Development JEL:I26 - Returns to Education India Labor economics Labor productivity Labor market Wages Human resources Economic development Input quality Production chains Return to skill Skill sorting Skill wage premium
Institute of Developing Economies (IDE-JETRO)
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