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Graphic: Paras Jain/Mint
Graphic: Paras Jain/Mint

Does Indian labour have anything to celebrate on Labour Day?

In the first nine months of 2014-15, employee expenses went up at the lowest rate since 2005-06

The first of May is celebrated throughout the world as Labour Day. But organized labour is a pale shadow of what it was a few decades ago, with its strength severely curtailed. With footloose capital able to move to countries with low wages and lax labour laws, the once-mighty unions in the developed world have bitten the dust. The widespread adoption of labour-saving technology has compounded the problem. Research shows that, as a result of these trends, the share of labour in national income has declined in many countries. The International Labour Organization and Unctad have been complaining about it for years.

But what has been the recent Indian experience? The accompanying chart has data on the growth of employee expenses and net profits among the BSE 500 firms. The 461 firms that have remained in the BSE 500 since 2004-05 constitute the sample.

The first thing to note is: employee expenses have consistently grown in double digits since 2005-06, except for the latest nine-month period to December 2014. Next, it’s clear that during boom years 2005-08, the rate of growth of employee expenses was very high, and that has obviously come down dramatically. Third, and most importantly, the rate of growth in employee expenses has usually been higher than the rate of growth in net profits, except for a few years. Even in the dark days of 2008-09, employee expenses went up sharply, despite many firms incurring losses.

The key takeaway: in recent years and among companies listed on the stock exchanges, the trend has been for labour remuneration to grow at a faster pace than profits. A few caveats are in order: 1) it’s entirely possible that staff costs have gone up because more people have been employed and 2) expenses may be skewed upwards due to higher salaries paid to top management. But the fact remains that payments to labour have gone up more than payments to owners of capital. Should that provide some cheer? Not really—the chart shows that, in the first nine months of 2014-15, employee expenses went up at the lowest rate since 2005-06.

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