A recent survey by FICCI and Quess Corp Ltd revealed that private sector profits have reached a 15-year high, while salary growth has remained minimal or even negative. This is cited as a key factor behind sluggish private consumption.
This coincides with GDP growth falling to 5.4 per cent during July-September 2024. Between 2019 and 2023, the compounded annual wage growth rate across six sectors ranged from 0.8 per cent to 5.4 per cent, resulting in minimal or negative real income growth.
During the same period, wages in the BFSI sector grew by 2.8 per cent, while the retail sector saw a growth of 3.7 per cent. The IT sector experienced a 4 per cent increase in wages, with logistics slightly higher at 4.2 per cent. In absolute terms, the average wage in 2023 was the lowest in the FMCG sector at ₹19,023, while the IT sector reported the highest average wage at ₹49,076.
During the same period, high retail inflation further eroded the purchasing power of the working class. This decline in purchasing power could lead to reduced aggregate demand, triggering slower economic growth. Government officials have repeatedly pointed to this relationship to explain the recent slump. Over the last four years, profit growth has increased fourfold. Globally, slow wage growth is a persistent issue, especially in the unorganised sector, where wage rigidity is less prevalent.
Low quality jobs
The falling wage share in India is further evidenced by the poor quality of employment generated in recent years. The 2023-24 Periodic Labour Force Survey (PLFS) shows increasing labour market participation and halving of the unemployment rate from 2017-18, but most jobs created were of low quality.
Per PLFS data, 16 crore jobs were generated over six years, but a significant majority were in the self-employed and Unpaid Family Labour (UFL) categories. On average, one crore self-employed jobs were added annually, totalling 6.6 crore jobs, with another 5.9 crore in the UFL category and 0.9 crore in casual labour. Regular wage/salaried jobs accounted for just 3.1 crore over the same period. Self-employed and UFL workers often receive no wages. Notably, 67.4 per cent of working women are self-employed, many as unpaid family helpers. This trend highlights the poor quality of employment being generated.
In fact, PLFS data show a 5 per cent decline in regular wage jobs between 2017-18 and 2023-24, reflecting further deterioration in job quality. The rise in self-employment and UFL jobs also indicates high levels of disguised unemployment. For instance, the primary sector employs 45 per cent of the labour force but contributes only 14 per cent to GDP, underscoring substantial disguised unemployment.
In urban areas, most informal workers in the self-employed category engage in marginal economic activities to survive, such as running roadside eateries, selling vegetables, or repairing bicycles. These jobs are often the only option in the absence of better opportunities.
The decline in job quality and wage share is interconnected and has contributed to growing inequality in India. The pandemic exacerbated these issues, and recovery remains incomplete. India’s labour market, marked by an oversupply of unskilled and semi-skilled workers, has reduced workers’ bargaining power, making a declining wage share inevitable.
An increasing profit share at the expense of wages is unsustainable in the medium to long term. Wages drive consumption of goods and services, and their decline reduces aggregate demand, leading to production cutbacks and slower GDP growth.While cutting wage costs may boost profits in the short term, it undermines aggregate demand and creates an economic glut. This is what is unfolding in India today.
The writer is a faculty at the Goa Institute of Management and former labour administrator