Skill Premium and Technological Change

Abstract

The paper tests the presence of skill premium and capital skill complementarity in the Indian Economy. Using NSSO data for skilled and unskilled workers measured on the basis of educational qualification, the study attempts to find factors that affect the movement in skill premium in the Indian labour market. Using two different definitions, the study finds that skill premium does not show a stagnant behaviour. This was due to factors specific to the Indian economy-a large reserve army of labourers and a weak relative absorptive capacity of different sectors. Firms prefer adopting techniques such as flexibility, outsourcing, de-unionisation and hiring contract workers for maintaining higher level of profits rather than adopting new technologies. On account of these factors, Skill Biased Technical Change (SBTC) and acceleration hypothesis could not be observed in the Indian Economy.