We analyze the changes in earnings of paid workers (wage earners) in rural India from
2004/05 to 2011/12. Real earnings increased at all percentiles, and the percentage increase
was larger at the lower end. Consequently, earnings inequality declined. Recentered
Influence Function decompositions show that throughout the earnings distribution, except at
the very top, both changes in ‘worker characteristics’ and in ‘returns to these characteristics’
increased earnings, with the latter having played a bigger role. Decompositions of inequality
measures reveal that although the change in characteristics had an inequality increasing
effect, chiefly attributable to increased education levels, inequality declined because workers
at lower quantiles experienced greater improvements in returns to their characteristics than
those at the top.