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Indian real wages fell in 2008-11: ILO report-PR Sanjai, Remya Nair and Anuja
-Live Mint

Decline came as labour productivity grew 7.6%; wage growth remains far below pre-crisis levels globally 

India’s real wages fell 1% between 2008 and 2011, while labour productivity grew 7.6% in the same period, International Labour Organization (ILO) data showed on Friday, indicating that the benefits of the country’s economic growth didn’t translate into better pay for workers in the aftermath of the global economic crisis.

In contrast, China’s real wage growth was 11% in 2008-11, while labour productivity expanded 9%. India’s real wage growth was 1% in 1999-2007, while labour productivity rose by 5%. In 1999-2007, China’s real wage growth was 13.5%, while labour productivity growth was 9%, according to two charts detailing growth in wages and labour productivity in Asia for 1997-2007 and 2008-11 in the Global Wage Report 2012-13.

The report noted that data sources on wage growth indicate that real wages declined in a majority of recent years, shrinking the purchasing power of wage earners. The authoritative sources of data on wage growth in India are the Annual Survey of Industries by the Central Statistics Office and the real wage index published by the Labour Bureau, the report said.

“These figures are reflecting the story of the Indian labour market,” said Pravakar Sahoo, associate professor at Institute of Economic Growth.

Sahoo said the slowdown in manufacturing and rigid labour laws resulted in low employment generation opportunities with no improvement in wages. Profit margins of companies have been under pressure for the last three years and efforts have been made to improve productivity without raising wages, he said.

The consistent Consumer Price Index rise has also added to low real wages, he said.

“The ILO report is not at all surprising and it is very well within the expectations considering the fact of unorganized labour and the economic slowdown,” Sahoo said.

The Congress party said the numbers were “not very satisfying”, but that this was linked to the growth rate of the country.

“Growth has dipped in the last three-four years and it has put a squeeze on wages. There will be a decline and wages will not be able to keep up with inflation,” said Sandeep Dikshit, Congress spokesperson. “It is not a very satisfying number and this is why the government has been stressing for faster growth.”

India’s average gross domestic product (GDP) growth rate in 1999-2007 was 6.9% and 7.7% in 2008-11. As in China, the share of labour in the national GDP declined.

“Even in China, a country where wages roughly tripled over the last decade, GDP increased at a faster rate than the total wage bill—and hence the labour share went down,” the report pointed out.

In spite of the faster growth in real average wages in emerging regions over the last decade, absolute differences in wage levels across countries and regions remain considerable.
US Bureau of Labor Statistics estimates showed hourly direct pay for manufacturing in 2010 varied from almost $35 in Denmark, through a little more than $23 in the US, to $13 in Greece, between $5 and $6 in Brazil, and less than $1.50 in the Philippines.

“Using a different and non-comparable methodology, total hourly compensation costs in manufacturing were estimated at $1.36 in China for 2008 and at $1.17 in India for 2007,” the report said.

“Although these differences are measured in current US dollars and therefore are dependent on exchange rate fluctuations, they nonetheless point towards the persistence of wide gaps in wages and labour productivity across the world,” it said.

Wage growth remains far below pre-crisis levels globally and has fallen into the red in developed countries, despite continuing increases in emerging economies, according to the ILO report. Global monthly wages grew 1.2% in 2011, down from 3% in 2007 and 2.1% in 2010, the report said. These numbers are even lower if China is excluded from the calculations.

“This report clearly shows that in many countries, the crisis has had a strong impact on wages—and by extension, workers,” said ILO director general Guy Ryder. “But the impact was not uniform.”

The report points to sharp differences between countries and regions, with wages generally growing faster in areas where economic growth is stronger. While wage growth suffered a double dip in developed economies—where it is forecast at 0% in 2012—

it remained positive throughout the crisis in Latin America and the Caribbean, as well as Africa, and even more so in Asia.

The Union government introduced the variable dearness allowance (VDA) concept in 1989 in order to protect the minimum wage against inflation, minister of state for labour and employment K. Suresh told the Rajya Sabha on Wednesday.
“The appropriate governments are required to increase the minimum rates of wages from time to time by adding VDA, twice a year or annually, taking into account the rise in the consumer price indices for industrial workers,” he said. “In the central sphere, the minimum rates of wages are revised effective from 1 April and 1 October every year. As the draft cabinet note for the amendment of the Minimum Wages Act, 1948, for enhancing penal provisions along with other proposals is under finalization, the subject matter of the question is confidential at present.”

On 26 November, the minister had said that in a market economy, wage rates were dependent on a number of factors such as production, demand, labour mobility, geographical factors and cost of living.

“Both central and state governments intervene in the labour market with a view to fix minimum wages in respect of scheduled employment for which they are the appropriate governments,” Suresh said.

Himanshu, assistant professor at Jawaharlal Nehru University and a Mint columnist, said, “When productivity grows, one should look at how much of that goes to wages and how much to profits. In the last 10 years, though there has been a growth in productivity, workers have benefited less from this. This is because the share of profits in the value added has more than doubled as compared to the share of wages.”

“This is happening in both the manufacturing and services sector where companies are using the loopholes as well as lack of implementation of labour laws to suppress wages. Companies and even the government are increasingly using contract workers to bring down wage costs and improving productivity,” he said.

Contract workers accounted for less than 20% of all workers in the manufacturing sector in 1999-2000, but increased to almost 32% in 2008-09, according to the Annual Survey of Industries.

While the data released was alarming, it was an indictment of the present growth pattern, said Brinda Karat, senior leader of the Communist Party of India (Marxist) and a member of its politburo.

“The entire framework of neo-liberal policy has changed as the nature of labour employment has gone into contractual and casual workers, including those in the organized sector. It is a clear indicator of productivity increasing and wages going down,” she said. “This explains a further exploitation of the labour laws.”
The ILO report cautioned that policymakers should be careful not to promote “a race to the bottom” in labour share in the hope of gaining a competitive edge and exporting their way out of the recession.