Let’s move from rear-view to the windshield on wage data

Photo: iStock
Photo: iStock


The role of wages in a modern economy is complex—sometimes even contradictory

The role of wages in a modern economy is complex—sometimes even contradictory. Higher wages support consumer demand by strengthening the purchasing power of employees. They also fuel inflation by adding to business costs that are often passed on to consumers. That is not all. The level of wages is an important indicator of the quality of jobs available to citizens. They also provide useful insights about poverty trends in any country. And the relative movement in wages and profits give us information on how the growth of national income is being distributed, which is important for understanding both macroeconomic dynamics as well as inclusion.

Information on wage levels as well as wage trends is thus important for policymakers, economists, analysts and investors. For example, during the recent debates on Indian monetary policy, one reason why some (including this columnist) argued that interest rate hikes should be moderate despite high inflation was the fact that there were few signs of strong second-round effects of higher prices; demands for higher wages which could have further pushed up inflation were muted.

However, this was based on anecdotal evidence or guesswork. Hard information on what is happening to labour costs is inadequate in India. Most of the data that is available is either dated or provides a snapshot of only one part of the Indian economy. The need to build a national wage series that is representative, frequent and timely is thus stark. There is a data gap that needs to be bridged.

There are three main ways in which wage data is collected in India: through surveys conducted by the national statistical system, wage data that is filed in certain sectors according to laws regulating them, and information that can be sometimes gleaned from administrative data-sets. The national surveys have usually been the most important of the three.

The principal source of labour-market data in India—including wages—was the Employment-Unemployment Survey conducted by government statisticians every five years. These surveys were later supported by annual variants conducted by the Labour Bureau. Both have now been replaced by the Periodic Labour Force Survey (PLFS).

Like the surveys it replaced, PLFS is mainly focused on estimating quantities rather than prices in the labour market, or labour force participation rather than wages. And the data comes after a lag. For example, the latest PLFS annual report is for the financial year 2021-22, timelier than the quinquennial Employment-Unemployment Surveys, but still too dated to give anyone a clue about the wage situation right now.

That is true of most other data that analysts use to understand which way wages are moving—they are either too infrequent, come in too late, and provide information on only one part of the Indian economy. Here are some examples. The ministry of agriculture and rural development collects annual data on farm wages. The Annual Survey of Industries provides data on factory wages once a year. The Commission on Agricultural Costs and Prices uses data on farm wages to calculate cultivation costs that go into some of the estimates on what minimum support prices should be. Firms also submit data on wages to the government under the provisions of labour laws such as the Minimum Wages Act and the Payment of Wages Act. Almost all these types of data are collected on an annual basis and are released after a lag.

Many analysts in the financial markets track two types of data to get some idea of how wages are moving. The first is the monthly data on rural wages that is shared by the Labour Bureau. Among the problems with this data is that it is collected from a fixed sample of only 600 villages. And the actual data collection is done by village officials rather than trained enumerators. The second source of data that is tracked as a proxy is from the information provided by listed companies on their employee costs, but this is a small part of the total Indian labour force. It also misses the work that bigger companies outsource to their suppliers.

In March, Professor Himanshu of Jawaharlal Nehru University wrote in Mint Views about the Wage Rate Index which was restarted in 2016 with a new base. It provides a good idea of urban wages, but even that data is only available on a half-yearly basis. As Professor Himanshu wrote, the latest data from this series is for the first half of 2022.

In short, most of the wages data that is available in India is better suited to understand past trends rather than inform current decision making: rearview mirrors rather than windshields, that is. There is now a compelling case for a national wages report that is available on either a monthly or a quarterly basis. It is quite likely that the complexity of a dual economy such as ours cannot be captured in one wage index, so there is a need for surveys on rural, urban, informal sector and formal sector wages. That is a task for the statistics system, the finance ministry, labour ministry, Reserve Bank of India and Niti Aayog to push.

Niranjan Rajadhyaksha is CEO and senior fellow at Artha India Research Advisors, and a member of the academic advisory board of the Meghnad Desai Academy of Economics.

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