There isn't any big base effect at work here, so the fall in wage growth is the result either of less demand for rural labour or more supply. Either way, it points to rural distress
If economic growth is picking up, as all experts agree, why is growth in rural wages faltering? The accompanying chart shows that growth in rural wages for men, taken as the simple average wage rate for all rural occupations, fell to 3.09% in January this year, from 6.57% in the same month a year ago. It’s the lowest year-on-year growth since November 2014. In real terms, adjusted for inflation, rural wage growth for men is negative.
There isn’t any big base effect at work here, so the fall in wage growth is the result either of less demand for rural labour or more supply. Either way, it points to rural distress.
Year-on-year growth in wages for male rural workers engaged in agricultural activities was a mere 1.67% in January. For these workers, average wage rates in January were lower than those last September.
For non-agricultural activities, the y-o-y wage growth was slightly better, at 3.61% in January.
There has been much talk about the government’s focus on building rural roads. If construction has indeed picked up in rural India, surely the wages of construction workers should be rising, too? Why, then, is the growth in wages of male rural construction workers falling? The data show that wage growth for male construction workers in rural areas was 3.57% in January and it has declined steadily every month from a high of 6.33% last July.
At first glance, there seems to be a silver lining, as the story appears to be markedly different for rural women workers.
The average growth rate for rural women’s wages was up a decent 7.79% in January. A closer look, however, shows the jump was due to a low base—the growth rate in January 2017 was a mere 1.38%. For women construction workers in rural India, the growth rate in wages for January 2018 was 5.08%. This growth, too, was on a very low base.
In short, the data indicates that all is not well in rural India.
How can one reconcile this data with companies reporting robust rural consumption? One explanation is that the demand is coming from the better-off sections of the rural population. The poorer part of our rural population, after all, functions more as a reserve army of underemployed labour that keeps wage rates down, rather than as a source of effective demand.
From a macroeconomic perspective, the saving grace is that the absence of rural wage pressures should hold back inflation.
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