Traditional institutions met the modern world

This paper addresses the question of how traditional institutions interact with the forces of globalization to shape the economic mobility and welfare of particular groups of individuals in the new economy. We explore the role of one such traditional institution--the caste system--in shaping career choices by gender in Bombay using new survey data on school enrollment and income over the past 20 years. Bombay's labor market was historically organized along rigid caste lines; such restrictions on mobility can be welfare enhancing when network externalities are present. But there was a dramatic change in the returns to different occupations in the 1990s. We find that male working class--lower caste--networks continue to channel boys into local language schools that lead to the traditional occupation, despite the fact that returns to non-traditional white collar occupations rose substantially, suggesting the possibility of a dynamic inefficiency. In contrast, lower caste girls, who historically had low labor market participation rates and so did not benefit from the network, are taking full advantage of the opportunities that became available in the new economy by switching rapidly to English schools. Thus, caste continues to play a particular role in shaping schooling choices in the new economy of the 1990s. But the overall increase in English schooling in recent years and the growing mismatch in education choices and hence occupational outcomes between boys and girls in the same caste, suggest that the remarkably resilient caste system might finally be starting to disintegrate. Keywords: Institutional Change, Globalization, Schooling, Caste, Gender. JEL Classification: O12, I21, J24.