Worker scarcity: Low-wage labour in India is crying out for a quantum leap in pay

Recently, S.N. Subrahmanyan, the chief of a company that hires hard-hat workers in hundreds of thousands for construction projects, Larsen & Toubro, spoke of reluctance among such workers to migrate long distances to its site locations. They don’t want to move from rural places, he was cited as saying, given the comfort offered back home by welfare schemes. 

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A problem of labour retention was also identified by Vimal Kejriwal, CEO of KEC International, who reportedly said that workers used to work at a site for almost a year before going on annual leave, but now often leave within a quarter and do not return. 

It’s not just CEOs who are talking about what’s going on in India’s labour market. In a judicial matter to do with shelters for homeless people, Justice B.R. Gavai of the Supreme Court said that election-time freebies may have reduced the will of people to work. 

All this may sound like a post-pandemic trend, but it harks back to a behavioural quirk that was under debate decades ago: an observed “backward bending curve of labour supply."

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In an open market for most things, rising prices attract greater supply. If these two variables are plotted on a graph, we usually get an upward curve that shows more stuff available as its price goes up. Humans, however, do not behave the same. They not only face a trade-off of work versus leisure, what satisfies them tends to decline as they get more of it (money included). 

While labour supply also rises in line with rising wages, beyond a point those factors could combine to shrink supply in response to higher pay. This backward bend can be explained by time being used for pursuits other than work. 

The odd part, or what was once seen to mark India out, was how quickly along that path employers would find themselves staring at a bend-back. As our economy evolved, however, both the bend and debate over it seemed to dissipate. 

Yet, going by what some big employers are saying, both might be on their way back, even if we have no sign of a sectoral crisis; notably, construction still outpaces the economy. 

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No analysis of a labour shortage today can overlook the pandemic’s impact. With millions left high and dry by lockdowns, we witnessed long walks home as part of an exodus of migrant workers from big cities. Stung by covid-time hardship, their weighing of risks against the rewards of urban jobs may have tilted many in favour of staying back in villages. 

No doubt, free food and other handouts would tilt decisions the same way, but we cannot assume that freebies are the chief reason. After all, studies suggest that work is widely preferred over doles to get by.

The challenge in our market for low-wage labour, it seems, is one of raising the inflexion point at which other pursuits beat the appeal of extra earnings at urban work sites. From a behavioural perspective, this needs aspirations to be stoked. Better work conditions can help. 

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To that end, a 2005 law directs state boards to collect money from labour employers for the welfare of construction workers, but it has made little difference. The government also has housing plans and other safety nets, with its e-Shram portal expected to aid labour. 

Yet, the only sure way out would be to offer low-wage workers a quantum leap upward in what they’re paid—and can aspire to.