Is Self-Employment the Answer to Caste Discrimination? Decomposing the Earnings Gap in Indian Household Nonfarm Businesses

Abstract

Using the 2004-05 India Human Development Survey data, we estimate and decompose the earnings of household businesses owned by Scheduled Castes and Tribes (SCSTs) and non-SCSTs across the earnings distribution. We find clear differences in characteristics between the two types of businesses with the former faring significantly worse. The mean decomposition reveals that as much as 55 percent of the caste earnings gap could be attributed to the unexplained component. Quantile regressions suggest that gaps are higher at lower deciles, providing some evidence of a sticky floor. Finally, quantile decompositions reveal that the unexplained component is greater at the lower and middle deciles than higher, suggesting that SCST-owned businesses at the lower and middle end of the conditional earnings distribution face greater discrimination.JEL classification codes: J31, J71, C21, O15, O17

Bad Karma or Discrimination? Male-Female Wage Gaps Among Salaried Workers in India

“…The decomposition of wage/earnings gaps into the "explained" and the "unexplained" components has been widely used in order to tease out the effect of discrimination. In India, the BO decomposition method (Blinder 1973;Oaxaca 1973) has been used to decompose average wage and earnings gaps by caste (Banerjee and Knight 1985;Deshpande and Ramachandran 2014;Deshpande and Sharma 2016;Madheswaran and Attewell 2007, among others) and religion (Bhaumik and Chakrabarty 2009).…”