137 © 2022 Conscientia Beam. All Rights Reserved. POOLED OLS AND FIXED EFFECT ESTIMATION OF WAGE STRUCTURE AND DIFFERENTIAL IN HANDLOOM SECTOR: CHOOSING THE BETTER METHOD Konita Basumatary 1+ Mridula Devi 2 1,2 Department of Economics, Bodoland University, Assam, India. 1 Email: konitabasumatary@gmail.com 2 Email: mriduladv@gmail.com (+ Corresponding author) ABSTRACT Article History Received: 12 July 2022 Revised: 6 September 2022 Accepted: 21 September 2022 Published: 4 October 2022 Keywords Handloom Panel analysis Production Rural Urban Wage Weaver. JEL Classification: C33; E26; E24; J31; R29. This study analyzed the wage structures and differentials of weavers in the handloom sector taking pooled Ordinary Least Square (OLS) and fixed effect model. Within Assam, India, primary data was collected from Bodoland Territorial Area Districts (BTAD), both rural and urban areas in the years 2018 and 2021. The result estimated by using pooled OLS shows production, productivity, education, experience, training, and distance of weavers from weaving residence to have a positive impact on the wages of weavers. Age, distance of weaving, and location of weaving were found to have a negative impact on wages. However, the result estimated using panel least square (fixed effect) showed age and location of weaving to have a negative impact on wages. The study also chose the better method among pooled OLS and fixed effect model. Since the probability value the Wald test statistic is less than 0.05, the fixed-effect model is preferred to Pooled OLS. Contribution/Originality: Previous studies on the wages of handloom weavers were analyzed mainly by multiple regressions considering cross-section data. The study deviates from others because it has considered panel data. The factors affecting the wages can be taken into account to enhance the livelihood of weavers. 1. INTRODUCTION The understanding of wage differential is an important topic in the empirical study as well as in the labour economics to analyze wage relations and the characteristics of work (Basumatary, 2017). There are two aspects of wage behavior as given by the neoclassical model. First, as labour demand is determined by the value of the marginal product, productivity differences lead to wage differentials (Pindyck, Rubinfeld, & Mehta, 2006). Another aspect refers to the competitive market where free market forces ensures labour of the same quality is paid the same wage (Romaguera, 1991). The basic model that explains the wage differential is the efficiency wage model (EWMs). The efficiency wage hypothesis states that workers' productivity depends positively on their wages (Katz, 1986). In the neoclassical model, wages perform an allocative job by equating labour demand and supply. However, in EWMs it has an additional role that states that wages are also affected by the physical productivity of worker behavior. In the efficiency wage model, the firm may pay a wage to the worker that is higher than their marginal revenue product because paying a higher wage may lead to increased productivity or it may reduce costs associated with turnover (Romaguera, 1991). The compensating wage differential theory that goes back to Smith (1776), The Wealth of Nations, defines wage differentials as compensation for unpleasant working conditions. According to this Journal of Social Economics Research 2022 Vol. 9, No. 2, pp. 137-146. ISSN(e): 2312-6264 ISSN(p): 2312-6329 DOI: 10.18488/35.v9i2.3152 © 2022 Conscientia Beam. All Rights Reserved.