Bad News for Rural Wages

Surajit Das 
The rural workforce in India is mainly engaged in agricultural activities like ploughing/tilling, sowing, harvesting/winnowing/threshing, picking (including tea, cotton, tobacco & other commercial crops), horticulture, fishing (including inland and coastal/deep sea), animal husbandry, etc., or occupation-wise people are carpenters, or blacksmiths, or masons, or weavers, or beedi makers or plumbers, or electricians, or construction workers, or LMV & tractor drivers or sweeping/cleaning workers etc.



The labour bureau of government of India collates monthly data on wage rates of above mentioned 25 occupations (12 agricultural and 13 non-agricultural). This data is collected by the field operation division of National Sample Survey Office (NSSO) from 600 sample villages spread over 66 NSS regions in 20 states in the country. Before 2014, data on wage rates were available on 11 agricultural and 7 non-agricultural occupations. For our present analysis, we consider wage data on 4 agricultural (ploughing, sowing, harvesting and picking) and 5 non-agricultural occupations (carpenter, blacksmith, mason, LMV & tractor drivers and sweeping/cleaning workers) for male workers for which, consistent monthly data is available from July 2008 to October 2018 (for last 10 years). 
The annualised growth rates of wages in other occupations and that for the female workers have been found to move more or less parallel with the movements of these. Undoubtedly there exists wide gender wage gap. However, the trend in growth rate of wages of female workers has been similar to that of the male workers. The news is that the growth rates of rural wages have come down far below the growth rate of gross national income (GNI). In real terms, the average rural wage rates have been absolutely stagnant after the political regime change (from UPA-2 to NDA).
Even if the number of employed people remain the same (although many are arguing that unemployment has increased in the recent past), if the average wage rate of vast majority of the workforce rises at a lower rate than rate of growth of national income, the inequality is bound to rise in the economy. Although, these are rural wage rates, but, there is no reason to believe that inequality is lower in the urban areas. Moreover, since most of the common people in the unorganised sector earn this kind of wages – e.g. Rs.324 for harvesting, Rs.350 for fishing, Rs.424 for carpentry, Rs.202 for beedi making, Rs.231 for sweeping/cleaning and so on in October 2018, and since more than 92% of Indian workforce is engaged into unorganised sector in India, the income of majority of employed Indians get determined by these daily wage rates. Daily wage rates might be relatively higher in urban areas, however, the growth rates of wages, on an average, may not be necessarily higher in urban areas as compared to that in rural India.
In panel-I of the graph, the annualised monthly average growth rates of rural nominal wages (i.e. simple average of the growth rates of wages in May 2014 over wages in May 2013 and so on) for the male workers have been plotted (continuous line) during July 2009 to October 2018 along with the nominal annual GNI growth rates (broken line) in these years. The political regime change (i.e. in May 2014) has been depicted by the vertical black line. Clearly, during the UPA-II period, the average growth in rural wages was above the GNI growth, in general. However, this was not the case earlier during UPA-I and the NDA regime before that. Since November 2014 (till October 2018), the national income (GNI) grew at more than 10% per annum, in nominal terms. Whereas, the rural wages have registered only around 5% growth on an average. 
It is important to mention that the sharp rise in average annualised growth rate of daily wage rates (for male workers) during November 2013 to October 2014 happened because of change in sample villages. However, even if we discount for that, the fall of nominal wage rates from over 15% to around 5% is undeniable. The nominal GNI growth was higher during 2009-10 to 2013-14 as compared to that during 2014-15 to 2017-18, yet the average growth in rural wages was even higher in the earlier period. It is worth noting that the average inflation rate was also relatively higher during the UPA-II period as compared to the NDA period (mainly due to higher international price of oil and oil price deregulation). Panel II of the graph depicts the real picture after netting out the impact of rise in the prices based on new rural consumer price indices (CPI) and on CPI for rural labourers (RL) (for the earlier months; the dotted line).
In panel-II, the annualised growth rates in real rural wages have been depicted along with annualised CPI based inflation rates and the annual growth rates of real GNI (at constant prices). Here also, it is evident that the average growth in real wages (rural) was higher than the growth rate in the previous regime, which has come much below the real GNI growth rate in the ongoing regime. In 2016 and in 2018, the growth rates of real wages have become absolutely zero, on an average. In 2017, the nominal growth rate was equally low (see Panel I), but the real growth was around 2.5% per annum because of relatively lower inflation rate (mainly because of the demand contraction at aggregate level followed by ‘demonetisation’).
Some orthodox economists believe that slower growth in wages would reduce the growth rate in cost of production and would eventually be good for profitability and growth. However, if the growth rates of income of vast majority of the masses happens to be lower than the growth rate of national income, then the growth in productive capacity in the economy would exceed the growth in aggregate demand (read size of the domestic market at aggregate level), which is determined mainly by the purchasing power of common people. As a result, following renowned economist Michal Kalecki, the rate of profit per unit of productive capacity would fall. On the face of falling rate of profit, given other things constant, there would be relatively less ‘addition to the existing stock of capital’ as a result of lower expected rate of profit. As a consequence of this, the investment rate would come down and, given the state of technology, the future growth rates would suffer. Therefore, increase in inequality may constrain the growth rate as well, by restricting the rate of growth of aggregate domestic market size. 
The growth rate in wages must be made at least as high as the GDP growth. It is not only important for stopping the degree of inequality from rising further but also for arresting the profit rate from falling. Falling rate of profit and increasing inequality have got serious implications for future growth rates and stability of the economy and society. It is an interesting research question of social science why and how the rural wage growth rate crashed in the country with the political regime change. However, the available government data clearly shows that it has indeed crashed almost immediately after the above-mentioned political change.
Source: Labour Bureau, Govt. of India. Available at
Note: Continuous line depicts the growth rates in wages, broken line depicts the growth rate in GNI and the dotted line depicts the rural inflation rates based on CPI.


Surajit Das is Assistant Professor, CESP, JNU, New Delhi
Deepali is Research Associate and has done MA from CESP, JNU, New Delhi