Estimating caste base wage gap in Nepal: An oaxaca-blinder decomposition approach

Abstract

Nepal is a diverse country with a complex mix of castes, cultures, religions, languages, and ethnicities. The caste system in Nepal is based on occupation and is heavily influenced by patriarchal values. In this context, this study investigates wage gaps among different caste groups, employment sectors, and reservation status in Nepal. Using the data from third wave of National Labor Force Survey (NLFS 2017/18) we estimate mincerian log wage equations and further decompose it using oaxaca-blinder decomposition into composition and wage structure component. The findings suggest that wage gaps are primarily driven by market endowment factors, such as education, experience, and skills, rather than discrimination. In particular, the study found that returns on education are minimal for marginalized caste groups, while education attainment among the Tagadhari caste group leads to higher wages compared to other caste groups with similar levels of education. The government sector tends to offer higher wages, even for those with poor market endowment levels, and reservation has helped to reduce wage gaps. The unexplained component of the wage gap decomposition was found to be insignificant, suggesting that wage discrimination is not a significant factor.