ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Wage Penalty in Temporary Employment in India

Evidence from Quantile Regression

The extent of wage penalty between workers in permanent and temporary jobs at different locations of the wage distribution is examined by evaluating the impact of workers’ characteristics and education. The differential effects of the covariates on wage gap at different locations of the wage distribution are estimated by applying the quantile regression model. After estimating the differential effects, the relevance of the glass ceiling or sticky floor hypothesis has been tested with Indian data. The wage gap between temporary and permanent employment is decomposed into the endowment effect based on the difference in labour market characteristics and coefficient effect based on the difference in returns for the same characteristics.

The author is grateful to the anonymous referee for comments.

With a significant increase in temporary employment, almost all countries (both developed and developing) have been experiencing increasing earnings inequality during the past three decades (Levy and Murmane 1992; Juhn et al 1993; Gottschalk and Smeeding 1997; Banerjee and Piketty 2005; Picchio 2006; Naticchioni et al 2008; Chancel and Piketty 2017). But, the problem of inequality is more critical in the transitional developing economy and the analysis of the earnings distribution with employment structure, and other characteristics of the labour market assume significance both in theoretical and empirical research. This study re-examines the extent of wage penalty between permanent and temporary workers by taking productivity-enhancing factors like education, training, and work experience into account in a transitional developing economy—India—after two and a half decades of economic reforms, by using survey data. In this study, we define wage penalty as the wage gap between workers with the same level of human capital, working in a similar type of job.

In India, employment has been generated mainly in the form of temporary jobs of heterogeneous types during the high-growth regime. During the recent phase of the market-based development process, jobs created in the private sector have been mostly temporary in nature, while the governments, both at the national and subnational levels, have been reluctant to absorb workers on a permanent basis. Temporary employment is defined in terms of job status and the types of job contract as given in Schedule 10 of the 68th round survey conducted by the National Sample Survey Office (NSSO). Casual workers with no written job contract or with one for a very short period are treated as workers in temporary employment. Temporary workers do not enjoy social security benefits and receive wages according to the terms of the daily or periodic work contract. Temporary workers are casual workers and most of them have no written job contract, while permanent workers have a written job contract for a longer period. Permanent workers enjoy social security benefits and receive wages or salary payments on a regular basis.

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Updated On : 7th Oct, 2019
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