An important indicator of the nature of economic development is the employment generated by growth. The Indian economy seems to have done better in this regard during the period from 1999-2000 to 2004-05, reversing the earlier trend of so-called jobless growth which characterized the economy between 1993-94 and 1999-2000.
However, what matters is not the quantity but the quality of jobs created. At least 90% of the country’s workforce is employed in the informal sector, with low wages and lack of social security. But it is the real wages and earnings of regular workers in the organized sector that are a good indicator of labour productivity. In the past, even during a crisis, the real wages of regular workers did not decline. Since a large part of the upward movement in the gross domestic product (GDP) was accounted for by the organized sector, it was not expected that the regular workers would see a real decline in wages and earnings. On a lower average rate of growth of GDP between 1993-94 and 1999-2000, real wages of regular workers grew at around 5% per annum.
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The National Sample Survey Organisation (NSSO) recently released the results of the 2005-06 employment and unemployment survey, which reconfirms the slowdown in regular wages and earnings since 1999-2000. Wages of regular workers in rural and urban areas for males and females have declined in real terms compared with 2004-05. These disturbing trends raise obvious questions about the quality of employment in the organized sector. It is obvious that much of the growth in regular employment has not been accompanied by similar improvements in the quality of employment. It also suggests a widening gap between wages and earnings of regular workers with higher education and those who are semi-skilled or unskilled. At the same time, the higher compensation to skilled and educated workers is a clear recognition of the premium companies and entrepreneurs are willing to pay to attract talent.
These figures are also confirmed by independent data of Annual Survey of Industries (ASI). ASI, which relates to the organized manufacturing sector, shows almost negligible growth rate of wages between 1999-2000 and 2004-05. The wage rates obtained from ASI are similar to the wage rates of regular workers for organized manufacturing sector from NSSO.
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Some indication of what happened, at least in the factories sector, is available from the disaggregated statements of the ASI. During 1999-2000 to 2004-05, ASI says net value added in factories grew by 7.3% per annum. However, workers’ wages grew by 0.15% a year in that time. The situation was better for managerial and supervisory staff, for which average earnings increased at 4.7% a year.
But the real story emerges by looking at the share of net value-added that is distributed between wages and profits. While share of wages in net value-added declined from 17% to 13% between 1999-2000 and 2004-05, the share of profits increased from 31% to 56%. This partially explains what happened in factories after 1999-2000. A large part of the increase in value-added was retained as profits by entrepreneurs. Some increase in net value-added by factories was passed on to managers and supervisors; a large part of the working class was kept out.
This may mirror the kind of industrial growth seen in East Asian economies where jobs were created at almost stagnant wages, often described as a Lewisian transformation. However, it will be premature to attribute any Lewisian transformation in the Indian context.
What does seem to have helped the industrial and organized sector in keeping the wages low since the beginning of 2001 is the increase in distress employment, partly driven by movement out of agriculture as a result of the agrarian crisis, which intensified during 2000-03, and partly driven by the weakening of the workers’ bargaining ability.
Some of these issues will again emerge as major challenges as the financial crisis makes its presence felt on the Indian economy. The spectre of large-scale unemployment and job losses is already visible. The challenge for the organized sector is not only to maintain employment levels and create more employment but also to ensure that the workers share equally in the gains of labour productivity.
Himanshu is assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi. Farm Truths looks at issues in agriculture and runs on alternate Wednesdays. Respond to this column at firstname.lastname@example.org
Graphics by Pras Jain / Mint