Trade Liberalization, Wage Discrimination and Inequalities in Indian Manufacturing Industry‪.‬

Abstract The paper aims to examine the effect of trade liberalization on wage discrimination (by capital / labor ratio) and wage inequalities by presenting an empirical analysis for Indian manufacturing industry group during the period 1991-92 to 2007-08. The findings of the study reveal that wages have increased at a lower rate as compared to exports and imports in all manufacturing industries during the postreform period. Out of all the 23 industries considered, capital intensive industries, followed by labor intensive, intermediate capital intensive and ultra labor intensive constituted high share in exports, imports and wages during the study period. Interindustry analysis reveals that exports exert positive and non-significant influence on wages at all three points of time while imports exert negative and significant impact on wages at all three points of time. X/S, M/S and T/S negatively and non-significantly affects wage inequalities thus indicating that trade liberalization has reduced wage inequality but non-significantly. Thus there is a need to increase more exports so as to increase employment and wages in manufacturing industry group. Downward pressure on wages due to import competition should be curtailed. Import liberalization policy should be such that if it increases the imports, these increased imports should be used to increase the domestic production in home market rather than act as competitors to domestic market and hamper the production and wages of domestic industries.