Abstract

THE MINIMUM WAGE AND THE DUAL LABOR MARKET: YOUTH EMPLOYMENT AND DISPLACEMENT IN INDIA (2000–2010)

Rakesh Kumar Sudan

Volume: 5 Issue: 1 2015

Abstract:

This paper empirically analyzes the effect of state-level minimum wage variations on youth employment in India, focusing on the distinct dynamics of the dual labor market (organized vs. unorganized sectors). Utilizing panel data from the National Sample Survey Organisation (NSSO) Employment and Unemployment Surveys (EUS) spanning 2000 to 2010, the study employs a two-sector Difference-in-Differences (DiD) framework. The findings reveal a limited, ambiguous effect on overall youth employment, but a significant displacement effect. Increases in the real, inflation-adjusted minimum wage in a state are found to be associated with a relative decline in youth employment probability in the organized (formal) sector and a relative increase in the unorganized (informal) sector. This evidence suggests that minimum wage policy in a low-compliance, developing economy acts primarily as a mechanism for reallocating young, low-skilled labor into less-protected, lower-quality jobs, rather than creating widespread open unemployment.

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