Interpreting the Caste-based Earning Gaps in the Indian Labour Market: Theil and Oaxaca Decomposition Analysis

TL;DR

This paper analyzes caste-based earning gaps in India using Theil and Oaxaca decomposition methods, revealing significant within-group inequalities and suggesting policy focus on education and skill development for disadvantaged castes.

Contribution

It applies Theil and Oaxaca decomposition techniques to quantify and interpret caste-based earnings disparities in India, highlighting within-group inequalities and the role of pre-market factors.

Findings

Within-group inequalities exceed between-group disparities.

Higher overall inequality observed for forward castes.

Pre-market discrimination affects human capital investment.

Abstract

The UN states that inequalities are determined along with income by other factors - gender, age, origin, ethnicity, disability, sexual orientation, class, and religion. India, since the ancient period, has socio-political stratification that induced socio-economic inequality and continued till now. There have been attempts to reduce socio-economic inequality through policy interventions since the first plan, still there are evidences of social and economic discrimination. This paper examines earning gaps between the forward castes and the traditionally disadvantaged caste workers in the Indian labour market using two distinct estimation methods. First, we interpret the inequality indicator of the Theil index and decompose Theil to show within and between-group inequalities. Second, a Threefold Oaxaca Decomposition is employed to break the earnings differentials into components of endowment, coefficient and interaction. Earnings gaps are examined separately in urban and rural divisions. Within-group, inequalities are found larger than between groups across variables; with a higher overall inequality for forward castes. A high endowment is observed which implies pre-market discrimination in human capital investment such as nutrition and education. Policymakers should first invest in basic quality education and simultaneously expand post-graduate diploma opportunities, subsequently increasing the participation in the labour force for the traditionally disadvantaged in disciplines and occupations where the forward castes have long dominated.