India’s Labour Force Is Plagued by Identity-Based Divide & Widening Wage Gaps

A latest report by APU finds that there are significant earnings gaps between three different social groups.

The Bihar Government recently announced the sub-caste-wise census population numbers for the state. Looking at the numbers closely, the OBCs (Other Backward Classes) -further divided into BCs (Backward Classes) and EBCs (Extremely Backward Classes) have a share of 63 percent in the state population numbers.

Social identity and its disposition for a given community has a critical role to play in the way access to basic amenities, employment, social security, etc is organised.

Earnings Gaps Across Social Identity Groups

A recent report produced by the Centre for Sustainable Employment at Azim Premji University has highlighted the important role that social identity plays in determining the type of employment a person is likely to be engaged in and their earnings across India.  

The report finds that regular wage or salaried work tends to be the most remunerative, followed by self-employment and then casual wage work. Further, within each type of employment, there exists significant heterogeneity in occupation, industry, and other job characteristics that play an important role in determining labour earnings.

 It also finds that there are significant earnings gaps between different social groups. Gender gaps are the largest among the three, with women reporting earnings only 40 percent of that of men in self-employment followed by 64 percent of that of men in casual wage and 76 percent of that of men in regular wage.

Caste and religious gaps are narrower, but still significant with Muslims being paid higher than Hindus under the category of casual wage but lower in terms of regular wage and self-employment. There exists in a noticeable difference between earnings of SC/ST and other castes.  

Gender-Based Pay Disparity

The gender earning gap is further broken down by decile of the earnings distribution.

It is noticed that the gender gap reduces for salaried or regular wage workers as we move up the distribution. The gender disparities fall as one moves up the income distribution than at the bottom.

There could be a number of possible explanations. One such possibility is that higher educated women have better bargaining positions and there exists less discrimination in formal and regulated jobs. It also finds that the gender gap is much higher between men and women in the case of self-employment. 

One reason is that self-employed women are more likely to be concentrated in lower-paying sectors.  Another possibility is that self-employed women face more discrimination than women in regular wage work.

This discrimination may be due to several factors, such as social norms that discourage women from starting their own businesses or lack of access to credit and other resources. 

Findings from the report also suggest that the largest gender pay disparity is found among the lowest income. This implies that the income distribution's bottom quartile is where gender discrimination is most pronounced. This might be because of several factors, including the fact that disadvantaged women are more likely to work in informal, unregulated industries with weaker anti-discrimination laws. 

The Caste and Communal Factors

On focusing on regular wage work, decile-wise earnings gaps by caste that is, SC/ ST versus Others (including OBCs), gender (women by men), and religion (Muslim by Hindu). It shows that religion and gender gaps move in opposite direction.

Women at the upper end of the earnings distribution are less disadvantaged than men but Muslim workers at the upper end of the distribution are more disadvantaged compared to Hindu workers.

At the top decile, Muslim workers earn 75 percent of what Hindu workers earn. For the third and fourth decile, this number is much higher at around 94 percent indicating that Muslim salaried workers earn almost as much as Hindu salaried workers at the lower end of the earnings distribution.

Conversely, women at the bottom of the distribution only earn 40 percent of what men earn but at the top decile, the number is 93 percent. The increasing Hindu-Muslim gap for higher pay is more than just a matter of concern.

What Explains the Narrowing of Gender Earning Gaps?

APU’s report findings show that the gender earnings gap was highest in the first quartile and lowest in the fourth quartile in 2004. This suggests that gender discrimination was most severe among the poorest earners, the gender earnings gap narrowed in all quartiles between 2004 and 2019.

This is particularly evident in the second, third, and fourth quartiles. There are a number of possible explanations for the narrowing of the gender earnings gap,such as increased awareness of gender discrimination, anti-discrimination laws, and changes in social norms.

Another possibility is that women's educational attainment has increased significantly in recent decades. This gave women more skills and knowledge, which has made them more competitive in the labor market. There has also been an increase in the number of regular-wage jobs available to women.

There has been a structural transformation which has caused a significant change in the female workforce composition. It is observed that older, less educated women are moving out of the workforce, while younger and more educated women are increasingly coming on board.

The change in earnings of women can be seen on account of the improved situations on the discrimination faced by women in the workplace as well as the changing characteristic of those employed. Thus, it can be argued that gendered wage gaps can be bridged on two accounts, namely, reduced discrimination against women in the workplace and higher education and skilled qualifications of women, making them more sought after, professionally. 

Rising Wage Inequality

To understand the ‘unexplained differences’ causing the wage gap among the other two groups, the authors of the APU report employ the Blinder-Oaxaca decomposition, which essentially means endowments and returns. In essence, an accounting technique, it allows for assessing the proportion of the earning gap, which could be explained through difference in educations levels, marital status, and other observed characteristics.   

The method highlights how the unexplained portion of earning is larger for women that SC/ST workers or for Muslim workers in any type of work. Interestingly, the unexplained earning gaps are much larger for gender than caste because women, especially in the private sector, are discriminated against more than on lines of caste since here the division is between two genders and not among individuals within one gender.  

Caste discrimination is more prevalent in the public sector vis-a-vis the private sector since the latter runs on the principle of meritocracy as opposed to positive discrimination to empower groups. However, this unexplained gender disparity is more pronounced in rural areas versus urban areas. There is also a significant difference in the explained and unexplained reasons behind the gendered wage gaps, as can be seen in the table above. 

(Deepanshu Mohan is Professor of Economics and Director, Centre for New Economics Studies (CNES), Jindal School of Liberal Arts and Humanities, O.P. Jindal Global University. This is an opinion piece and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)