Local skill concentrations and district employment growth: a simultaneous equation approach for India

Spatial concentration of skills has been identified as an important factor that causes differences in regional employment in developed countries. In the light of this literature, this paper investigates the relationship between spatial distribution of skills in the year 2001 and district-wise employment growth between the years 2001 and 2011, for India. We argue that educational attainment as a measure of worker skills may not be appropriate for a developing country and take a different approach to measuring skills wherein a worker’s skill is inferred from the occupation in which he/she is employed. We use district-wise data on occupational distribution of employment (from Census of India) along with the skill content of occupations (from a US-based dataset called O-NET) to measure regional skills. Using this measure, we model employment and population growth simultaneously and find a positive relationship between cognitive skills and employment growth. The results are robust across all the models that we employ. Our results suggest the presence of externalities associated with skilled people which is instrumental in increasing productivity and employment in skilled regions.