Wages and Firm Ownership: A Study of the Manufacturing Sector of India

Abstract

From an ownership viewpoint, we analyse the determinants of significant wage differences for India’s manufacturing sector. We use data from the Centre for Monitoring Indian Economy’s Prowess database from 2000–2015. Using fixed-effects and Blinder–Oaxaca decomposition method, we confirm that foreign firms pay higher wages and salaries than domestic firms. Most importantly, productivity, participation in the export market, firm size, firm age and profit margin explain the inter-firm and intra-firm differences in labour intensity for the manufacturing firms in the Indian economy. The wage gap seems higher for intra-firm than the inter-firm, indicating that demand for labour is higher within the sector. JEL Classifications: E24, G32, L6, C13