Consideration of the nexus between Institutions and Outreach-The study of the caste discrimination in India -Kyosuke Kurita, Assistant Professor at the Graduate school of Asian-Pacific studies,
Waseda University, Nishi Waseda Bldg. 6F 611,1-21-1 Nishi-Waseda, Shinjuku-ku, Tokyo
169-0051, Japan E-mail: kurita@aoni.waseda.jp
1. Introduction
Recently, Capacity Development (CD) approach is one of the main paradigms in the debatesover the role of development AIDs. One of the important differences of CD from the otherapproaches is to take account of the sustainability of the effect of the AID project. The donors haveto consider how the situation would be changed or unchanged after the project has completed. In
other words, most important thing to secure the sustainability of the project is that recipients and thesociety have the capacity to take over the results of the project that have been achieved. In this sense,
it is not difficult to understand that the society faces with the change in their traditional customs andrules as institutional changes occur caused through the project. Thus, it is necessary to discuss CD inview of institutional changes.
First of all, I would like to show the approach to directly explore the change and generation of
institutions through the implementation of the project of CD. There has been rapid accumulation of
the researches associated with CD; most of them are conducted by JICA, UNDP and the other aid
agencies to validate the efficiency of CD approach. Although there are broad ranges of institutions
from the local customs at the village level to the legal and political structures at the country level,target institution of aid program tend to be relatively small because the geographic coverage of aid
project is normally regional or sub-regional level. For example, when an aid agency proceed aproject, such as several constructions of village hospitals or clinics in the province, they might haveto concern about the local tradition, kinship, hierarchic structure, social capital, and the others. In
this case, it looks very similar to the anthropologic research. Thus, most important things in thisapproach are to observe the institutional change in ongoing project, and to evaluate the implicationon the achievement of the project with CD.
Although capability approach1 by Amartya Sen doesn‟t directly deal with the relationshipbetween CD and institution, it might be considered as a different example of this approach. Recently,
work is proceeding with the development of the tool to evaluate the impact of the aid project using
capability approach. Alkire (2000) insists the usability of cost-benefit analysis to assess the project1

Refer to Sen (1999), Comim (2008).
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with capability approach2.
In any cases, important thing for this approach is to have the knowledge about the social andeconomic structure of the target society; otherwise it is almost impossible to make analysis following
this approach.
Excluding these case studies, there are not large accumulations of previous studies related to therelationship between CD and institutions. In addition, it might be possible to think that CD approachis not purely the objective of academic research, but just the instrument to conduct the aid project. I
partially agrees with this viewpoint. However, researchers have to express understanding for thenecessity to deepen the discussion about this issue. Thus, it is necessary to take a preliminary step todeal with this issue. I think it is almost impossible to directly discuss this issue; however, there are a
lot of previous studies analyzing the relationship between economic growth and institution, or
between economic growth and aid. One of the purposes of this paper is to make a basis for further
discussion with the help of these previous studies.
For that purpose, I would like to show an analysis in this paper; it is to analyze the relationshipbetween caste institution and their income in India using household micro data. In macro empiricalstudies, institutions, which are targeted in the analysis, is mainly discuss about the relationshipbetween economic growth and political institution, such as democratic condition, governance,
corruption, legal system, financial system, and the others 3. However, the coverage of aid project isnormally at the regional or provincial level within a country. Thus, micro empirical studies are
suitable for the discussion of the relationship between the CD and institution. Recent studies indicatethat the discrimination caused by the caste system reduces. Thus, the purpose of second analysis is to
examine the transition of discrimination related to the wage difference between Scheduled Castes(SCs)/Scheduled Tribes (STs) and the others in 17 years, 1983 to 1999, using National Sample
Survey micro data. In particular, I focus on the effect of the reinforcement of the reservation policyon the wage difference over the whole wage distribution. This analysis of the relationship between
policy change (reinforcement of the reservation policy) and welfare (the transition of wage
distribution) help us to challenge this difficult topic.

2. wage difference between caste classes in 1983-2000

2.1 BackgroundThe caste system in India is the traditional, hereditary system of social restriction and social
stratification, enforced by law or common practice, based on endogamy, occupation, economic status,

For more detail and recent discussions, refer to Comim (2008).
For more details, refer to Mauro (1995), Knack and Keefer (1995), Perotti (1996),
Acemoglu, Johnson and Robinson (2001), Kosac (2003). Especially, Acemoglu, Johnson
and Robinson (2006) summarizes the points of the recent development at this approach.
2
3

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race, ethnicity for a long period of time. To alleviate it, Indian government has constituted theaffirmative action plan and reservation policy in education and public job, where 22.5 % ofuniversity places and government jobs have been “reserved” for Scheduled Castes (SCs) and
Scheduled Tribes (STs) since 1979. Recently, India‟s Congress-led government has told companies
to hire more SCs, STs and Other Backward Classes (OBSs). Manmohan Singh, the prime minister,has given warning that “strong measures” will be taken if companies do not comply (Economist[2007]). That is to say, government has reinforced the affirmative action. In response to this, despitesome problems related to reservation policy, many companies and organizations launch their own
affirmative-action schemes.
According to Kijima (2006), the difference of log per capita expenditure between SCs/STs andthe others decrease from 0.315 (between STs and others), 0.228 (between SCs and others) in 1983 to
0.267, 0.191 in 1999, respectively.

Table1. Transition of the difference of log wage
Year

SCs/STs Others
Difference
1983
4.92
5.20
0.28
1987
5.16
5.52
0.36
1993
5.37
5.68
0.31
1999
5.41
5.63
0.22

In addition, table1 shows the difference of log wage between SCs/STs and the others decrease from1983 to 1999. It is said that the discrimination due to the caste system is not as severe as it used tobe.
Since 1991, embarking on full-fledged economic reform, macro economic performance in India
has been very remarkable. Especially, the demand for high-skilled labor is increasing.

Figure1 Difference of log wage between SCs/STs and the others

Quantile144

On the other hand, there have not been remarkable changes in the unskilled labor andlow-skilled labor. Figure1 shows the difference of log wage between SCs/STs and the others in 1983
and 1999 following their wage quantiles. It is obvious that there are large differences in terms of theratio to improve the wage difference according to their wage quantiles. It indicates that thereservation policy in private company and the increase of labor demand in high-value added sectors
like IT sector lead to increase relative wage of SCs/STs to the others at the higher quantile. Even
benefits of economic booming are not equally distributed all over SCs and STs.
Thus, the purpose of this paper is to examine the reason of transition of wage difference
between SCs/STs and the others in 17 years, 1983 to 1999, using National Sample Survey micro data.
In particular, I focus on the effect of the reservation policy on the wage difference between SCs/STs
and the others. In general, it is believed that the implement of reservation policy makes thediscrimination and wage difference between groups reduce. It is obvious that it has positive effect on
Indian situation, but I would like to point out the other effects of the reservation policy on them.
There have been already quite a few researches in terms of wage difference and discrimination
based on the caste system. Most of them are based on the decomposition approaches, which are
pioneered by Oaxaca (1973) and Blinder (1974). Although this decomposition method is very simple
and easy to interpret, there are some criticisms in terms of the methodological problem (Cahuc andZylberberg (2004)). Therefore, to adopt the quantile regression decomposition technique, which is
proposed by Machado and Mata (2006), I would like to solve these problems and shed the new lighton it.
I explain about the Machado and Mata decomposition method (MMD) in section2 and the NSS
data and empirical model in section3. I discuss the empirical results in section4 and conclude in lastsection5.

3.2. Quantile regression decomposition method
In general, for the analysis of the difference between groups, most previous literatures haveadopted the decomposition method based on the results from OLS, which are pioneered by Oaxaca(1973) and Blinder (1974). In simple terms, Blinder-Oaxaca decomposition divides the difference ofwage in two portions, one is the contribution of characteristics to the difference (ex. schooling years,
experiment, and so forth) between groups, and the other one is the contribution of the evaluation(coefficients) to the difference. Although this decomposition method is very simple and easy tointerpret, there are some criticisms in terms of the methodological problem (Cahuc and Zylberberg(2004)). One is that this decomposition method needs the information of only the average of theincome distribution (or wage, consumption, etc.). Given the information in terms of entire income
distribution, using these information make us get the more fruitful results compared toBlinder-Oaxaca decomposition. It is the decomposition based on quantile regression results (Mueller(1998), Garcia et al (2001)).

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Given Xi, the conditional distribution of yi at quantile θ is below,

Quant ( yi X i )  X i  ,    0,1 . …(1)
It is decomposed into two components
AB B  X A ( A 
 B )  residual …(2)Q ( y A )  Q ( y B )  ( X  X ) 

where superscripts A and B means each group, and also Qθ(yi) is the empirical distributionfunction of income yi. The first term and second term in right hand of equation (2) are consistent
with the contribution of the characteristics and the contribution of the evaluation in Blinder-Oaxaca
decomposition method, respectively.
However, there is still the problem in terms of the possibility to compare into two groups at all
quantiles. If the standard deviation of the distribution of group A is different from that in group B, it
might be difficult to compare two distributions at the various points of the distribution. Machado andMata (2006) propose the alternative decomposition procedure, which combines quantile regression 4
and a bootstrap approach to alleviate this problem.
Melly (2005) put all the important points of this approach into a few sentences. It issummarized as follows: If U is uniformly distributed on [0,1], then F-1(U)has distribution F. Thus,
for a given Xi, and a random θ～U[0,1], X i  has the same distribution as ( yi X i ) . If, instead of
keeping Xi, fixed, we draw a random X from the population, X  has the same distribution as y.
Formally, the estimation procedure involves 7 steps:

1. Generate random sample of size m from a U[0,1]: u1,…,um,
2.

EstimateforSCs / STs; i  1,..., m ）


（
ui

Others


,
ui

each

group

m

different

quantile

regression

coefficients:

3. Generate for each group a random sample of size m with replacement from the independent
variables of X, denoted by

4.

 y

SCs / STsi X , Xm
SCs / STsii 1

 X iSCs / STs ˆiSCs / STs , ymi 1OthersimOthers(using bootstrap method)ii 1

 X iOthers ˆiOthers

 are random sample of size m frommi 1

The presence of heteroskedasticity can be accounted for by estimating quintile
regressions following Deaton (1997), Koenker and Bassett (1978, 1982), and Koenker(2005).
4146

the marginal wage distribution of y consistent with the linear model.
5. Generate a random sample of the counterfactual distribution. { C y  X
cfi

Othersi

ˆiSCs / STs is ami 1random sample from the wage distribution that would have prevailed in SCs/STs if all independent
variables had been distributed as in Others.

6. In order to decompose the difference in the wage distribution into differences in the coefficientsand characteristics differential, we follow the equation below,

Q ( y Others )  Q ( y SCs / STs )  [Q ( y Others )  Q ( y count )]  [Q ( y count )  Q ( y SCs / STs )]  residual

In right hand, the first term is the contribution of the evaluation (coefficients) and the second term isthe contribution of the characteristics.

7. To repeat this procedure in each year, we can draw the dynamics of caste wage inequality in India
in 1983 and 1999.

3.3. Data and Model
The data sources for India are National Sample Surveys (NSS). The National Sample Survey(NSS), initiated in the year 1950, is a nation-wide, large-scale, continuous survey operation
conducted in the form of successive rounds.
In this paper, I use the employment and unemployment surveys in 1983 and 1999/2000, whichsurveyed with detailed questionnaire on household demography, individual‟s age, education
attainment, employment status, and social status, covering approximately 100,000 households and
500,000 individuals.
I divide datasets into subgroups defined by caste, SCs/STs and the others. Following thedefinition of activity status in NSS, I define that the individuals, who were employed into Indian
datasets, are the people, work as (1) regular wage/salary worker, (2) casual wage public worker, and(3) other casual wage worker.
Based on some literatures, we adopt age, age square, sex dummy (female is the referencegroup), educational dummy (low, middle , and high: low is the reference group), occupation dummy(“Professional”, “Administrative”, “Clerical”, “Sales”, “Service”, “Agricultural”, and “others”:
others is the reference group.), sector dummy(urban and rural: rural is the reference group), andregion dummy as the independents variables. Dependent variable is log of real monthly wage. Please
see the Table2 in detail of the variables.

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Table 2 The Summary of variables1483.4. Results

Table 3 The results of Decomposition

Table3 and Figure2 show and plot the ratio of each contribution. The contribution ofcharacteristics is larger than the contribution of coefficient at any points of distribution in 1983 and149

1999. At the same time, even if the wage difference decreases from 1983 to 1999 (Figure1), thecompositions of contributions from each variable are not much different in 1983 and 1999 in mostquantiles. Although the discrimination to SCs/STs in terms of evaluation on wage is reflected in thecontribution of coefficient, it is relatively a small effect compared to the contribution ofcharacteristics. The wage difference of 60 to 90% is explained by the contribution of characteristics,
such as the difference of accumulation of human capital and the occupational structure between
SCs/STs and the others. Especially, the contribution of education and occupation are relatively highabout 20-30% and 20-50%, respectively (Table4).

Table 4: Contribution of Characteristics

Both the contribution of education and occupation occupy 65 to 80 % of all contribution ofcharacteristics. That is to say, over 50 % of wage difference between SCs/STs and the others are
explained by the contribution of characteristics related to education and occupation. It is obvious that
there are large difference in terms of education and occupational structure between SCs/STs and theothers in 1983 and 1999. Therefore, reservation policy related to the reservation of the positions in150

advanced education for SCs/STs has the positive effect on reduction of educational inequality.
However, what is the effect of the reservation policy on the occupational structure? In fact, theresults, on which the contribution of occupation has largest effect and time invariant, are consistent
with the caste system, which is based on the functional classification. Thus there is little
discrimination by caste system and difference of wage within an occupation, but there are large wage
differences between occupations. This kind of phenomenon is nothing special. The most important
thing is that it is related to caste system. Therefore, it is hard to change jobs for improvement of theirwelfare. Although it is indisputable fact that there are creations of new jobs, such as workers in IT
sector and service sector, which do not belong to „old‟ caste system, it is quite limited a number andits dimention. That is to say, there are two types of limitation: one is the limitation of the choice ofthe jobs, and the other is the labor demand limitation of new jobs. Therefore, the contribution ofoccupation has largest effect on the wage difference at all quantile.
There is more to it. If the purpose of the reservation policy and affirmative action is to eliminate
the discrimination related to caste system and to relieve the poor SCs/STs, decreasing the differenceat higher quantiles is not enough to achieve it. It should be accompanied by reducing the differenceat the all quantiles or at the lower quantiles (pro-poor reduction of wage difference). Otherwise,
reservation policy and affirmative action could lead to increase inequality within SCs/STs.

Table5 Transition of Gini soefficients
SCs/STs
Others
Total

1983
0.478
0.518
0.517

1999 Difference
0.501
0.023
0.524
0.006
0.524
0.007

Table 5 shows the change of gini coefficients in 1983 and 1999. Both gini increase, but the rate ofSCs/STs is larger than others. It might not be completely unrelated to the reinforcement ofreservation policy. Although reservation policy has positive effect on the reduction of discrimination
related to caste system, it has been also pointed out many problems in terms of it. It can be said that
introduction of affirmative action plan after the WWII caused the deterioration of internal disparity
in SCs/STs. In fact, there are two types of SCs/STs in India: one is the wealthy SCs/STs, who benefit
from affirmative action, get the opportunity of the human capital accumulation and employment,
whereas the other is the poorer SCs/STs (say, they are poorest), who have failed to take advantage ofit and been stuck in poverty trap. The problem is that there is the possibility to consolidate thesituation of differentiated SCs/STs by the resent economic booming. The wealthy SCs/STs can ride
the wave of economic booming because of their higher human capital accumulation; on the other
hand, the poorer SCs/STs remain poor despite the economic growth. Consequently, the inequality
within SCs/STs might increase, and then, there might be the conflict within SCs/STs. In fact, it issaid that there are a lot of conflicts related to the rating of SCs, STs, and OBCs.

151

3. Conclusion and Implication to the understanding of the relationship between CD and IC
It is summarized as follows that the reservation policy has the effect on the reduction of
discrimination between SCs/STs and the others, but it has the negative effect on the disparity within
SCs/STs. The wealthy SCs/STs grab the chance to increase their wage thanks to the economic
booming since 1991 and reinforcement of reservation policy, which leads to reduce the wage
difference between SCs/STs and the others at the higher quantiles. Therefore, although the averageof wage difference has decreased, wage inequality within SCs/STs has expanded because the poorer
SCs/STs have not benefited from economic booming. The most important thing in Indian situation isthat the caste system and the reservation policy could strengthen the differentiated situation andmake it be persistence in future. Therefore, Indian government should make effort not only to
implement the reservation policy, but also to provide the chance to change people‟s well being. For
example, to build the vocational training school with free tuition and scholarship for the poor leads
to alleviate twist structure within SCs/STs.

Figure3 Structural understanding of the affirmative action policy in India

As Figure3 shows, the microeconometric analyses allow us to think about the relationshipbetween individual behavior and policy or institutional change at the micro level. Through theaccumulation of the microeconometric analyses, there has got to be a place to deepen theunderstanding of the relationship between CD and institutional change.

152

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