wages – Pertinent Observations

Value of skill in rural India

Earlier today I had blogged about wage rates for unskilled workers in rural India. Now, we will use the same dataset and see what premium people pay for skills. The same data gives wages for certain occupations – carpenters, masons, cobblers, blacksmiths, etc. There are also wages given for various types of farm labour, and for the purpose of this exercise I’ve used ploughing to be representative of farm labour.

The following plot shows the wage rates for different skills in different states. A note on how to read this graph. The x axis represents the state and the y axis represents the daily wage for that particular skill. The skill itself is represented in text form. So for example a carpenter in rural Kerala gets about Rs. 600 per day while a sweeper in Bihar gets about Rs. 100.

Source: Labour Bureau. Numbers for April 2013

Notice that even skilled jobs in other states don’t fetch as much as an unskilled job in Kerala. Tamil Nadu and Punjab come closest
The skills most in demand in rural areas across states are carpentry and masonry, if you go by this data
In most states, cobblers earn lower than “unskilled workers”. This is interesting because there is skill involved in making and repairing shoes. The low wages for cobblers indicates a caste bias. It is also possible that since cobblers are mostly self-employed their wage rate is inaccurate
Blacksmiths are again not too highly valued in villages
The high numbers for Kerala could be a function of the state’s lower urban-rural divide compared to the rest of India. Kerala is generally described as a semi-urban continuum with no strongly delineated urban and rural areas. Rural workers could be expensive since they are in demand for urban jobs also, unlike in other states.

The same caveats that apply to the previous post apply to this. We don’t know the sample size or the accuracy of the survey. Nevertheless, some interesting insights come out.

Wage rates in rural India

The Labour Bureau, affiliated to the Union Ministry of Labour, does a monthly survey on wages in Rural India. Wages of men and women in select occupations are polled (data is collected by the NSSO) and published on the website of the labour bureau. In this post we will look at the average daily wages of unskilled male workers (as reported by this survey) in the 20 states for which it is published (your guess is as good as mine as to why it is not published for other states).

It is interesting to note that the daily wage of the average unskilled man in Kerala is almost five times that of the average unskilled man in either Gujarat or Madhya Pradesh (states that are at the bottom of the list). Some states known to be “progressive” such as Punjab, Haryana and Tamil Nadu are also towards the top of the list while other so-called “progressive” states such as Maharashtra, Karnataka and Gujarat are close to the bottom.

Like any other data put out by the government, this should be taken with some salt. First of all, the sample sizes is not mentioned. Secondly, only the average number is reported and no measure of dispersion is given. For example, it is hypothetically possible that in Kerala they interviewed ten workers, nine of whom received Rs. 100 and the tenth received Rs. 4000 leading to an average of Rs. 490! As a thumb rule, when you put out survey data, you should always include sample size and a measure of variation (such as the standard deviation), else it is hard to conclude anything from the data.

The fundamental problem with the world economy

… is that wages are sticky.

With increased globalization, it has become significantly cheaper to produce certain goods and services in countries that were hitherto “low income” or “less developed’ or whatever you call it. In the past, in part due to protectionism at various levels and in part due to high transaction costs (transport, communication, etc.) “developed economies” such as the US or Europe had got adjusted to a reasonably high wage structure. In fact, it is possible that in the absence of trade with the rest of the world these countries might still be able to support that structure.

However, with the walls of protectionism and transaction costs falling, these traditionally high wage economies haven’t been able to compete with the up and coming economies where production costs are significantly lower. And because wages are sticky, i.e. it is impossibly hard to cut wages across the board, this has resulted in unemployment. Worse, a lot of other benefits (such as Social Security or Medicare in the US) have been set based on the high wage structure these countries used to enjoy.

And then you have unions, which makes it even tougher for you to cut wages which might make you competitive. It’s a combination of sticky wages and unionism that the various austerity measures in Greece haven’t managed to go through (of course, Greece has another set of problems in terms of law enforcement and tax collection).

And so, in short

1. Wages are sticky. Even though your current wages are not competitive enough, you can’t cut wages

2. That leads to high unemployment

3. That leads to lower economic activity and thus depression

4. The government needs to spend more to “stimulate” the economy, but hasn’t collected enough in good times. And the “level” of the economic cycle itself has gone down now. And the government itself has other obligations linked to the high wage levels

And so it goes. One thing I can think of is “devaluation” (in these times of floating currency rates, that term has lost all meaning), but then now these countries import so much that will again not be a good idea.

Fun!

PS: please note that this post has been filed under “Arbit”