Understanding Skill-Biased Technological Change in India: A Sectoral Analysis

Abstract

Skill-Biased Technological Change(SBTC) refers to a shift in production practices that increases the value of skilled worker relative to unskilled worker by increasing its productivity and, consequently, its demand. SBTC reshapes India’s workforce by boosting demand for trained labour, particularly in tech-driven industries, while diminishing chances for low-skilled workers. As a result, conventional businesses like manufacturing and agriculture are disrupted, pay differences grow, and inequality increases. Using sector-wise and aggregate data from the Employment and Unemployment Survey(EUS) and Periodic Labour Force Survey(PLFS) for the period 1993-94, 2004-05, 2011-12, 2018-19 and 2022-23, we investigate whether skill-biased technological change was responsible for the rise in skilled labour in India. At the industry level, we calculate the rate of skill-biased technological development. In each industry, we create metrics for the proportion of skilled to unskilled employment and skilled to unskilled salaries. This data produces estimates of structural parameters based on a link suggested by representative firms' profit-maximizing conduct. We discover that skill-biased technology development has occurred in the majority of industries, the rate of change has differed greatly throughout.