Policy Prescriptions

The factors affecting wage inequality may be many. The scope of this paper is pertaining
only to the most broadly considered factors that explain the gap in income between the two
distinguished classes of people, namely factory workers and managerial employees. The two factors
that we have investigated are:
The effect of capital employment, and
The effect of trade.
It is generally true that both the factors have had a negative effect on wage inequality over
the course of the past two decades. Therefore, our efforts in controlling inequality will prove futile if
the pattern of capital employment and trade continue in the same manner as has been observed till
date.
It would be a radical suggestion and expectation if we thought of a reduction in capital
employment in the manufacturing sector in the future. The manufacturing sector is in the process of
acquiring capital and it may be justifiably so for the prospective emergence of India as a developed
nation in the future. In fact, rapid capital accumulation is the hallmark of a developed nation and
persistence of higher growth of a nation as a whole. Therefore, capital employment may probably
always be on the rise, at least for a few more generations into the future. Therefore, we would be
over-optimistic to expect a fall in inequality via the route of capital employment.
On the other hand, if we were to expect a fall in inequality via the route of trade we would
not be absolutely incorrect. Every industry follows a certain pattern of trade and, in fact, it is this
adoption of their trading nature that has enabled us to segregate between export-oriented
industries and import-competing industries. From the graphs (Graphs 2, 3 and 4) illustrated in the
previous section, we have observed that there has been a gradual shift in the nature of trading of
the industries under consideration. It is true that the labour-intensive industries such as Leather
Industry have moved away from being an export-oriented industry to an import-competing one. On
the other hand, capital-intensive industries such as Machinery & Equipments Industry have moved
away from being an import-competing industry to an export-oriented one. The general conclusion
from this observation is that industries with greater capital employment are gaining comparative
advantages at the expense of the labour-intensive industries. Therefore, we would prove to be
presumptuous if we expected this gradual change in the trading nature of these industries to be
reversed any time soon. In fact, this particular shuffling of comparative advantage is a sign of gradual
development of India into a sophisticated industrialised economy, hence, proving all the more
necessary and natural. Therefore, tackling of inequality via the route of openness may prove to be
doubtful for some time in the near future, although not entirely impossible.
In strict technical terms, keeping with the concept of balanced trade, the major ways of
tackling inequality may be as follows:
If the Low-paid Worker intensive industries increased exports at a rate greater than that of
its imports, and
If the High-paid Employee intensive industry increased imports at a rate greater than that of
its exports.
The effect of such a pattern of trade would be expected to be in accordance with Stolper-
Samuelsons theory of trade. At the same time, in spite of such precise suggestions, it is necessary to
understand that industries such as Wood & Wood Products which is Low-paid Worker intensive and
also classified as an import-competing industry may not easily be able to change its pattern of trade
to an export-oriented industry. Therefore, suggestions to alter patterns of trade industry-wise may
not necessarily be all-round encompassing solution to contain inequality.
The adverse pattern of change in the nature of trade is also true at the inter-industry level.
Consequently, we have observed a divergence in income in between the export-oriented industries
and import-competing industries. Therefore, in keeping with the already presented idea of balanced
trade, inter-industry inequality may be contained if:
The export-oriented industries increased exports at a rate greater than its imports, and
The import-competing industries increased imports at a rate greater than its exports.

Quite understandably, these policies are immensely broad. The general idea we
propose is that persuasion of free trade will be in accordance with reduction of inequality. Although
it may not necessarily be true that if the adverse trend of trade be continued there will be any
redemptive effect on inequality, but it would at least leave the option open for the adverse trend to
be reversed.