This paper analyzes the changes in employment and earnings of paid workers in rural India from
2004/05 to 2011/12. While the employment rate of adults remained stable at 51 percent during this
period, it increased for men and fell for women. Real earnings of wage earners increased at all percentiles,
and the percentage increase was larger at the lower end. Consequently, earnings inequality declined.
Unconditional quantile regressions reveal that education contributed positively to the increase in
earnings, but it also increased inequality. Recentered Influence Function decompositions reveal that
throughout the earnings distribution, except at the very top, both changes in ‘characteristics’ and in
‘returns to these characteristics’ tended to increase earnings, with changes in returns playing a bigger
role. Decomposing inequality measures reveals that in spite of the change in characteristics having had
an inequality increasing effect, inequality fell mainly because workers at lower deciles experienced a
greater improvement in returns to their characteristics than those at the top.