Impact of Trade on Labour Productivity and Wage Inequality in India

Abstract: The paper empirically estimates the impact of trade on labour productivity and wage inequality between skilled (white collar) and unskilled (blue collar) labour in Indian manufacturing. Analysis is undertaken using dynamic panel data estimations (GMM) for 58 manufacturing industries for the period 1998-99 to 2004-05. The results show that export intensity of industries has positively impacted productivity of unskilled labour while import competition has led to higher productivity of both skilled and unskilled labour. However, trade has led to increase in wage inequalities between skilled and unskilled labour implying that it has increased the wages of skilled labour more than the unskilled labour.