MacroScan - Working More for Less

According to data from the recently released NSS large survey, between 1999-2000 and 2004-05, there was a revival of aggregate employment growth to approximately the rates achieved in the 1980s. In a previous paper, we had noted that this employment growth was essentially in non-agriculture in both rural and urban areas, and dominantly in self-employment for male workers, as well as substantial increase in regular work for women workers.

Such expansion would indeed be a sign of a positive and dynamic process if it is also associated with rising real wages, or at least not falling real wages. Therefore, in order to appreciate the nature of this new employment, it is important to examine the trends in real wages and remuneration for self-employment over this period. In this article we focus on this issue.

Chart 1 presents the average wages of workers by category, in constant 1993-94 prices. All the wage data used here refer to the wages received by workers in the age group 15-59 years. (In this chart as well as in the following charts and tables in which real wages are presented, the current price wage data have been deflated by the CPIAL for rural workers and the CPI-IW for urban workers.)

It is evident that for most categories of regular workers, the recent period has not been one of rising real wages. While real wages have increased slightly for rural male regular employees, the rate of increase has certainly decelerated compared to the previous period.
Chart 1 >>

For all other categories of regular workers, real wages in 2004-05 were actually lower than in 1999-2000. The economy has therefore experienced a peculiar tendency of falling real wages along with relatively less regular employment for most workers.

The behaviour of real wages of regular female workers in rural areas deserves some comment. The sharp increase in 1999-2000 may result from statistical error, since it reflects a large – and unlikely – increase in wages of only one category of such workers (those women workers who had up to primary education only), as indicated in Table 1 below. Therefore the changes in such wages are unlikely to be as sharp as suggested by Chart 1.

As noted in the previous edition of MacroScan, regular employment has been declining for male workers in particular, and in any case accounts for a minority of the work force in India. So it may be more relevant to see what has happened to the wages of casual labourers. This is presented in Chart 2.
Chart 2 >>

As evident from Chart 2, real wages of casual labour appear to have increased slightly in rural areas, although once again the rate of increased has slowed down compared to the previous period. However, for both men and women workers in urban areas, real wages for casual work on average declined compared to 1999-2000. This is truly remarkable for a country in which real GDP has been growing at an average rate of 8 per cent over this period, and where much of this growth has been concentrated in urban areas.

It was already evident from the first two charts that the gender gap in wages tends to be quite large. There is also evidence that it has been increasing over time. Chart 3 show average female wages as a percentage of male wages for regular and casual workers. A number of features emerge from this. First, this ratio is relatively low even by the standards of other developing countries, although not as low as Southeast Asia.

Second, the gender gap in wages has increased for all categories of workers – urban and rural, regular and casual - between 1999-2000 and 2004-05. (Once again the particularly sharp changes for rural regular workers may however reflect a data error for 1999-2000.) Third, the gender wage gap tends to be much larger for casual work than for regular work.
Chart 3 >>

The issue of the gender gap in regular work is particularly interesting, because this type of female employment has increased in the latest period. It now accounts for around 36 per cent of all urban women workers, even though it is still less than 4 per cent of all rural women workers. Therefore it is worth examining the trends in real wages of women in regular jobs.

Table 1 presents this data. As noted above, there are likely to be problems with the recorded information on average real wages in 1999-2000, specifically of urban regular women workers who are literate or have up to primary level education. However, even if we ignore this particular number, the trends revealed in Table 1 are startling. Over the first half of this decade, real wages of regular women workers declined for every category of education level, and in both rural and urban areas!
Table 1 >>

In rural areas the average decline in regular women workers’ real wages over the first five years of this decade was by 32 per cent, and in urban areas by 10 per cent. Even if we ignore the outlier, the decline in real wages in other categories was substantial. Illiterate women workers in regular employment in rural areas faced average wage cuts of 20 per cent, while those who had secondary and higher secondary education faced average cuts of nearly 30 per cent! It should be noted that more than 66 per cent of all rural women workers were illiterate, and 37 per cent of urban women workers were illiterate.

In urban areas, illiterate women workers experienced the sharpest declines in real wages, at more than 22 per cent. Graduate women had the lowest real wage decline of around 5 per cent – but the point is that even for this category, real wages on average fell.

All this should be seen in conjunction with dramatically increasing rates of open unemployment, especially for women. While space does not allow for a detailed discussion of this here, unemployment rates according to this latest survey are now the highest ever recorded. Unemployment measured by current daily status, which describes the pattern on a typical day of the previous week, accounted for 8 per cent of the male labour force in both urban and rural India, and between 9 and 12 per cent of the female labour force.

The real expansion in employment has come in the form of self-employment, which now accounts for around half of the work force in India. The increase has been sharpest among rural women, where self-employment now accounts for nearly two-thirds of all jobs. But it is also remarkable for urban workers, both men and women, among whom the self-employed constitute 45 and 48 per cent respectively, of all usual status workers.

This makes the issue of remuneration in self-employment a particularly important one. If working people are moving away from paid jobs to more independent and more remunerative forms of self-employment, then that is certainly to be welcomed. But if they are forced to take on any activity on their own in order to survive, simply because a sufficient number of paid jobs is not available, then that is another matter altogether.

This is especially the case for less educated workers without access to capital or bank credit. Self-employment for such workers often means that they are forced into petty low productivity activities with low and uncertain incomes.

The latest NSS report confirms this, with some very interesting information about whether those in self-employment actually perceive their activities to be remunerative. This information is presented in Table 2.
Table 2 >>

It turns out that just under half of all self-employed workers do not find their work to be remunerative. This is despite very low expectations of reasonable returns – more than 40 per cent of rural workers declared they would have been satisfied with earning less than Rs. 1500 per month, while one-third of urban workers would have found up to Rs. 2000 per month to be remunerative.

As is to be expected, the material expectations of women workers were far below those of men, yet despite this, around half of self-employed women did not find their activity to be remunerative. Even in the case of the relatively most satisfied group of self-employed workers, the urban males, around to-fifths did not find their activity to be paying economically.

This suggests that a large part of the increase in self-employment – and therefore in employment as a whole – is a distress-driven phenomenon, led by the inability to find adequately gainful paid employment. So the apparent increase in aggregate employment growth may be more an outcome of the search for survival strategies than a demand-led expansion of productive income opportunities. Clearly, employment generation must remain the central concern of our policy makers.