Wage inequality, Urbanization and In(formalization) in India

Abstract This study aims to explain the wage inequality from the standpoint of urbanization being experienced by the developing economies, focusing on the case of India. Migration, changes in the administration boundaries and natural growth, sub-urbanization and informalization of spaces during urbanization contribute differently to wage inequality. The contribution of different types of urbanization to wage inequality has been captured by segregating spatial inequality from sectoral. The findings from quantile regression reveal that sectoral wage inequality in urban areas is higher than spatial wage inequality. Given the rapid and poor quality of urbanization observed in India, the study concludes that formalization/ strengthening labour market institutions should be prioritized for addressing the issues of wage inequality and promoting urban prosperity. JEL Classification: R12, J31, J46, O17