Real Wages, Not Just Unemployment, Is the Worry


Real Wages, Not Just Unemployment, Is the Worry

Jean Drèze (Visiting Professor at the Department of Economics, Ranchi University) argues “India’s most important economic indicator is also the most neglected — the growth of real wages….Even in public debates on economic policy, very little attention tends to be paid to real wages. Instead, there are endless discussions of comparatively useless data on ‘unemployment’.”


The problem for poor is more ‘underemployment’ than unemployment

The unemployment figures, Drèze states  “are not particularly relevant to poor people. In India, poor people are rarely unemployed, because they cannot afford to do nothing. If they are unable to get a good job, they do their best to survive from fallback activities such as selling eggs on the street or pulling a rickshaw. Most of them are not counted as unemployed in household surveys. Their problem is more ‘underemployment’ than unemployment, but underemployment is not measured in these surveys. Indeed, it is hard to measure.”

Real wages, on the other hand, Drèze states “are quite informative. If real wages are rising, workers are likely to be earning more and living better. A sustained rise in real wages is a good sign that economic growth is translating into better jobs. Stagnation of real wages, on the other hand, would be a major concern from the point of view of poverty reduction.”

And “unlike unemployment, real wages are quite easy to track, for some occupations at least. Consider agricultural labour. In most Indian villages, there is a reasonably well-defined wage for casual agricultural labour at any point of time. No household survey is required to find it out — simple enquiries at the village level will do. If this is done at regular intervals in a good number of randomly-selected areas, we can get a fair picture of what is happening to wage rates. Deflating them with a price index to compute real wages is not difficult either.”

The Labour Bureau has been doing something like that for many years. The Bureau collects occupation-wise wage data every month in all Indian states and publishes summary statistics in the Indian Labour Journal. “The quality of this information is uncertain, but it is likely to be good enough for the purpose of assessing broad trends in real wages….

“It takes little effort to convert the nominal wage figures into real wages using the Consumer Price Index for Agricultural Labourers (CPIAL) and then to estimate the growth of real wages by semi-log regression of real wages on time. The results are startling. The growth rate of real wages between 2014-15 and 2021-22 was below 1 per cent per year across the board; more precisely 0.9 per cent, 0.2 per cent and 0.3 per cent for agricultural labour, construction workers and non-agricultural labour respectively….”

Drèze emphasises  “we must pay much more attention to real wages….”

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