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Exogenous technological change and wage inequality in rural India: a theoretical note

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Purpose ‐ The purpose of this paper is to develop a theoretical model to explore the economic consequences of an exogenous skill-biased technological change. Design/methodology/approach ‐ The paper develops a theoretical model based on assumptions and conditions that replicate those of a government-sponsored poverty reduction programme in India. Findings ‐ The paper finds that, under certain stated conditions, wage inequality between artisans with improved toolkits and those without is likely to increase, while, under a different set of conditions, this is likely to decrease. Research limitations/implications ‐ Actual wage inequality implications of specific exogenous skill-biased technological changes need to be studied to take the theoretical model further. Practical implications ‐ One major implication is that, when government help is provided by way of an exogenous skill-biased technological change to a fraction of workers, it may have the unintended consequence of increasing wage inequality between the beneficiary and the non-beneficiary workers. In extreme cases, it may even lower the equilibrium wages of the non-beneficiary workers. Originality/value ‐ The paper brings out the critical role of efficiency units of workers with skill-biased technology (artisans with improved toolkits) and those without these in determining the wage inequality between these categories of workers (artisans) based on a theoretical model of the trajectory along which the rural economy moves.
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Keywords: Change management; India; Labour efficiency; Skills

Document Type: Research Article

Publication date: 2007-09-04

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