Wage data together with employment suggests that while the number of persons seeking jobs and getting employed has increased considerably in last six years, increase in wages has not been able to keep pace with inflation, leading to real wages remaining static or even moderating.

National Accounts Statistics (NAS) gives perspective of sectors, expenditure and factor share. It also provides the share of compensation to employees, operating surplus and mixed income. It is difficult to segregate wage and profit components separately for self-employed persons.

Hence operating surplus and derived wages of owners are merged as mixed income. The share of compensation to employees, mixed income and consumption of fixed capital (depreciation) during 2011-12 to 2022-23 has averaged 34.1 per cent, 53.5 per cent and 12 per cent, respectively, of GVA at base prices.

During the 11-year period, while the GVA increased by an average of 10.6 per cent, compensation to employees grew at 11.7 per cent and mixed income grew only at 9.8 per cent.

Overall real wages, assuming an average inflation of 5 per cent, have shown a healthy increase of over 6 per cent. Presuming employment growth of 2 per cent, real wages seem to have doubled during the decade. However, we see divergences on wages data of NAS and the PLFS (Periodic Labour Force Survey).

Other than NAS, data on wages are provided by PLFS reports. Since 2017-18, PLFS provides annual data. PLFS provides emoluments/earnings for the self-employed, persons drawing salary/wages and daily wages for the casual workers. As per PLFS, earnings for different categories during 2017-18 and 2022-23 are indicated in the Table.

Key inferences

The following can be inferred from the Table:

Though PLFS covered self-employed persons, who may not draw any salary, on an average, salaried persons’ earning is higher than that of the self-employed, indicating that perhaps self-employment in many cases may be not by choice but due to non-availability of salaried jobs.

Wage increase has averaged 3.8 per cent for salaried class and 1.6 per cent for the self-employed. The wages of casual workers, which are State determined, have been higher at 8.5 per cent.

With an average inflation of around 5 per cent, real wage increase has been negative for both wage earners and self-employed.

Further, significant differences in wages continued to persist in urban and rural areas for both male and female. The difference between urban and rural earnings for self-employed persons has increased in 2023-24 compared to 2017-18.

The transaction costs involved in dislocation from rural areas and additional expenditure of an extra establishment in the urban areas is high. The difference in rural and urban wages is not enough to incentivise dislocation. This is a reason why the self-employed stick to rural areas and also an increase in their numbers, including family helpers, preferring to be underemployed. The percentage of workers as self-employed has increased, though marginally to 58.4 per cent. There has also been an increase in number of wage earners to 21.7 per cent, but a marginal decline in percentage of casual workers

There is considerable difference in the rate of growth of employee compensation in PLFS compared to NAS data. The survey results indicate that except for casual workers, real wages may have actually declined.

The PLFS data on employment does not indicate of any structural shift occurring in the economy in employment preferences or employment options.

This is a status-quoist outcome. While there has been a sharp increase in work participation rate from 32.7 per cent in 2017-18 to 40.2 per cent in 2023-24, agriculture in terms of sector and self-employment in terms of category continue to retain their status as main absorbers of workforce.

Another important feature is the existence of a large number of persons (over 32 per cent of persons) in the age group 15-29 who are neither employed, nor in education and training (NEET), indicating that persons are waiting for salaried jobs. This is income forgone by the economy.

Divergence in data

Reducing divergence between NAS and NSSO data must be a priority to help policymakers.

While wages of casual workers could be statutorily raised and so are the minimum wages, what is important is increasing the income of self-employed persons in agriculture and non-agriculture activities in rural and semi-urban areas. More than three-fourths of non-agricultural workers are self-employed or family workers within their own joints.

The critical question is raising the income level of these people. The current policies should reorient such that these people get collateral-free credit for capital formation, marketing support, establish their links with suppliers and producers of similar products for aggregation benefits, technological upgradation, appropriate municipal laws to facilitate them in their place of production and support in terms of access to raw materials.

Without integrating this huge chunk of workforce with the formal sector we may not be able to solve the problem of underemployment, low wages and income, and economic and social empowerment.

Gopalan is former Secretary, Economic Affairs, and Singhi is former Senior Economic Adviser, Ministry of Finance. Views are personal

Published on October 24, 2024