Skill Sorting and Production Linkages: Evidence from India

Abstract

Contrary to the theoretical predictions of most studies, this paper empirically shows that high‐skilled workers in India are sorted into industries with weaker production linkages. I hypothesize that such a reverse sorting pattern (negative sorting) occurs because the returns to skill become lower in industries with stronger production linkages as a result of substantial quality deterioration. Such substantial quality deterioration as the size of production linkages grows is likely to occur in developing countries such as India, which is characterized by a large pool of low‐skilled labor, poor infrastructure, and less‐advanced technology. Using both individual‐ and industry‐level data from the National Sample Surveys and input–output tables for India in 1999 and 2009, I find consistent evidence in favor of this hypothesized mechanism. The results are robust when accounting for possible endogeneity and selection biases and controlling for alternative reasons.