What Determines the Wage Transition in the Indian Urban Labour Market? Evidence from Recent Data

This study examines the dynamic regional wage transitions and determinants of wage inequality across Indian states from 2017–2018 to 2023–2024, with particular focus on the impact of the COVID-19 pandemic. Using the Periodic Labour Force Survey (PLFS), we investigate how states have moved across wage quartiles over time and the extent to which structural and social factors have helped these movements. By combining three complementary methods, transition probability matrices, shift-share analysis and pooled OLS regressions, the study reveals a persistent regional imbalance, with limited upward mobility among low-wage states, implying that the wage structure remains mainly rigid over time. Further, we demonstrate that the COVID-19 pandemic resulted in a significant downward shift in wage distributions, with states clustered at lower wage levels. In contrast, the post-pandemic years have displayed only partial recovery with growing divergence. Shift-share results reveal that, although most states exhibit stability in yearly shifts, quarterly analysis highlights volatility, with negative shifts dominating, accompanied by convergence tendencies in the short term. Regression estimates confirm the importance of education and experience in wage determination but also expose persistent disparities based on gender, caste and religion.