A Division of Laborers: Identity and Efficiency in India
Workers' social identity affects their choice of occupation, and therefore the structure and prosperity of the aggregate economy. We study this phenomenon in a setting where work and identity are particularly intertwined: the Indian caste system. Using a new dataset that combines information on caste, occupation, wages, and historical evidence of subcastes’ traditional occupations, we show that caste members are still greatly overrepresented in their traditional occupations. To quantify the effects of caste-level distortions on aggregate and distributional outcomes, we develop a general equilibrium Roy model of occupational choice. We structurally estimate the model and evaluate counterfactuals in which we remove castes' ties to their traditional occupations: both through their direct preferences, and also via their parental occupations and social networks. We find that the share of workers employed in their traditional occupation decreases substantially. However, effects on aggregate output and productivity are very small–and in some counterfactuals even negative–because gains from a more efficient human capital allocation are offset by productivity losses from weaker caste networks and reduced learning across generations. Our findings emphasize the importance of caste identity in coordinating workers into occupational networks which enable productivity spillovers.
The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. This work was supported by the Fonds Wetenschappelijk Onderzoek – Vlaanderen (FWO) and the Fonds de la Recherche Scientifique – FNRS under EOS project O020918F (EOS ID 30784531) and by CEPREMAP. We are grateful to Joseph Altonji, Mark Rosenzweig and Nicholas Ryan and audiences at NES, WEHC, LSU, UBC, UNamur, ULB, BREAD, Warwick, Chicago, USC, Tulane, SEA, ASSA, and STEG for helpful suggestions. We are extremely grateful to James Nye at the University of Chicago library for his invaluable help in accessing the 1911 Census data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.