How Much do Education, Experience, and Social Networks Impact Earnings in India? A Panel Data Analysis Disaggregated by Class, Gender, Caste and Religion

We estimate the returns (measured by hourly earnings) to education, experience, and social networking in India using individual-level panel data from the India Human Development Surveys. We combined the two latest waves of this survey using individual-level identifiers to generate a balanced panel and merged it with various household characteristics. We provide estimates of private returns for an additional year of education and experience by consumption quintiles, gender, caste, and religion in a fixed-effects Heckman model that controls for selection bias. This methodology improves upon estimates of all earlier studies on earnings in India, as most of the literature has relied on cross-section data or pseudo-panel data. We also examine the impact of social networking on earnings, which is under-explored in nationwide studies in India. We find that education significantly and positively affects earnings for all consumption quintiles, gender, caste (except schedule castes), and religious groups. Among economic groups, the highest returns are observed for the third quintile above the poverty line. Returns to females for an additional year of education are nearly double that of males but the difference in starting earnings keeps earnings of males higher for long periods. Among the castes, scheduled castes have the highest returns to education and other minorities among religious groups. Social networking positively impacts males, Hindus, and the quintile just above the poverty line. Experience positively impacts women's earnings, general caste and scheduled caste, Hindus and Other minorities and two consumption quintiles (two and five) above the poverty line. Impact of Education, Experience, and Social Networks Impact Earnings in India by Class, Gender, Caste and ReligionPurpose: Enhancing human capital is critical for India's development. It would help overcome existing labor market hierarchies based on economic class, gender, religion, and caste. We study the impact on private earnings of (a) an additional year of education and experience, and (b) social networking. Methods: We use an individual level panel dataset assembled from the two latest rounds of the Indian Human Development Survey (I&II). Our Heckman type earnings equation controls for selection bias. Results: An additional year of education increased earnings between (a) 2.4% and 8.8% among different consumption quintiles (b) 3.7% for males to 5.2% for females, (c) 1.5% (STs), to 5.9% (SCs), and (d) 2.3% (Muslims), to 9.9% (Other Minorities). Experience increased earnings of two economic groups, females, the General and Scheduled castes, and of Hindus and Other Minorities. Social networking increased earnings of males, Hindus, and one economic quintile. Conclusions: Higher marginal returns to education for females justifies greater investment in women's education. Lower returns on education among STs and Muslims indicate the need for affirmative action for these groups. The positive returns to education for the poor suggests that anti-poverty programs in combination with educational opportunities for the less privileged would meet the goals of social justice. Implications Better education (SDG4) would help achieve gender equality (SDG5), and social justice for marginalized (economic, caste and religious) groups (SDG1, SDG10). Limitations: We were unable to account for ability bias. Stratification by state and sector would provide better estimates.