Economic Implications of Slow Wage Growth
A slow increase in wages poses significant concerns for economic growth and equity, as evidenced by recent surveys and reports.
Key Findings from the Annual Survey of Industries (2023-24)
- Profits vs. Wages: Profits per factory rose by 7%, while wages per worker increased by only 5.5%.
- Corporate Profitability: Reached a 15-year high in 2023-24, indicating a growing disparity between wage and profit growth.
- Labour Productivity: Gains in labour productivity have stalled, with output per worker showing weaker growth post-2013-14.
- Formal Sector Shrinkage: The share of formal manufacturing in GDP has nearly halved since 2010-11, reducing access to stable, quality jobs.
Global Context and Technological Impact
This wage-profit disconnect is a global issue, exacerbated by rapid technological changes.
- International Labour Organization (ILO) Report 2025: Predicts significant transformation in job roles due to generative AI, affecting nearly one in four workers.
- Impact on Young Workers: Automation of entry-level jobs limits skill-building and wealth accumulation, risking stagnant wages and a widening wealth gap.
Labour Laws and Employment Patterns in India
- Labour Protection Intent: Aimed at improving worker conditions but has led to increased contract-based employment.
- Manufacturing Sector Trends: Significant rise in contract labour since the early 2000s, impacting wages directly.
- Periodic Labour Force Surveys: Indicate that a small minority of India's labour force is formally employed.
Industrial Growth and Employment Implications
- Capital-Intensive Growth: Sub-sectors like machinery, chemicals, electronics, and pharmaceuticals have outperformed labour-intensive sectors, affecting employment generation.
- Stringent Labour Laws: Cited as a major reason for underperformance in labour-intensive industries, impacting wages and economic growth.
- New Labour Codes: Awaiting implementation, expected to address some of these challenges.
Conclusion
To sustain higher aggregate demand, employment creation in low-skill, labour-intensive sectors is essential. The ongoing trend of profit growth outpacing wage growth needs urgent debate, although a near-term solution remains complex.
