Assessment Of The Elasticity Of Substitution Between Skilled And Unskilled Workers

Abstract

In this paper, we study the changing composition of the Indian workforce and estimate the elasticity of substitution between skilled and unskilled workers. The data is obtained from surveys by National Sample Survey Office (NSSO), namely Employment and Unemployment Survey (EUS) and Periodic Labour Force Survey (PLFS) for 1993-94, 2004-05, 2011-12, 2018-19 and 2022-23. The workers are dichotomized as skilled and unskilled on the basis of their education levels and are further grouped in 11 industry categories. In each industry, we calculate estimates of the employment and salary ratios between skilled and unskilled workers. On the basis of the profit-maximizing actions of the firms, we figure out a relationship between the employment and salary ratios of skilled and unskilled workers using which we calculate the elasticity. We discover that the elasticity of substitution between the two types of workers varies throughout industries in Indian economy. These estimations of the elasticity of substitution may be useful in developing growth plans for India that would increase employment.