On Wage Inequality, Trade and Technology: Theory and Empirics

This paper is intended to contribute in the analysis of the movements of real wages of skilled and unskilled labour in Indian manufacturing over the last two decades and thereby trying to provide plausible explanations for the causes of the widening gap between the two wages. A widening gap between the two wages essentially implies increasing wage inequality, which is measured as the ratio of the two wages. Thus, an increase in the ratio of the skilled to unskilled wages (that is, the relative wage rate) would mean that the relative wage movement has been against the unskilled labour. In the same way, a fall in the relative wage rate implies that the wage movement has been in favour of the unskilled labour.