Disadvantage and discrimination in self-employment: caste gaps in earnings in Indian small businesses

TLDR

The study aims to estimate and decompose the earnings of household businesses owned by Scheduled Castes and Tribes versus non‑SCSTs across the earnings distribution. It uses 2004–2005 India Human Development Survey data to perform this decomposition. The analysis reveals that SCST‑owned businesses earn significantly less, with about 55 % of the earnings gap attributable to unexplained factors, and that the gap is larger at lower and middle deciles, indicating a sticky floor and greater discrimination for SCST firms at the lower end of the earnings distribution.

Abstract

Abstract Using the 2004–2005 India Human Development Survey data, we estimate and decompose the earnings of household businesses owned by historically marginalized social groups known as Scheduled Castes and Tribes (SCSTs) and non-SCSTs across the earnings distribution. We find clear differences in characteristics between the two types of businesses with the former faring significantly worse. The mean decomposition reveals that as much as 55 % of the caste earnings gap could be attributed to the unexplained component. Quantile regressions suggest that gaps are higher at lower deciles, providing some evidence of a sticky floor. Finally, quantile decompositions reveal that the unexplained component is greater at the lower and middle deciles than higher, suggesting that SCST-owned businesses at the lower and middle end of the conditional earnings distribution face greater discrimination.