Exogenous technological change and wage inequality in rural India: a theoretical note

Purpose – The purpose of this paper is to develop a theoretical model to explore the economic consequences of an exogenous skill-biased technological change. Design/methodology/approach – The paper develops a theoretical model based on assumptions and conditions that replicate those of a government-sponsored poverty reduction programme in India. Findings – The paper finds that, under certain stated conditions, wage inequality between artisans with improved toolkits and those without is likely to increase, while, under a different set of conditions, this is likely to decrease. Research limitations/implications – Actual wage inequality implications of specific exogenous skill-biased technological changes need to be studied to take the theoretical model further. Practical implications – One major implication is that, when government help is provided by way of an exogenous skill-biased technological change to a fraction of workers, it may have the unintended consequence of increasing wage inequality between the beneficiary and the non-beneficiary workers. In extreme cases, it may even lower the equilibrium wages of the non-beneficiary workers. Originality/value – The paper brings out the critical role of efficiency units of workers with skill-biased technology (artisans with improved toolkits) and those without these in determining the wage inequality between these categories of workers (artisans) based on a theoretical model of the trajectory along which the rural economy moves.