Growth Of Wage Rate For Industrial Labour

Published Date: 02 Nov 2017

Chapter 5

Chapter 5: Trend and Movement of Growth of Wage Rate for Industrial Labour in India: A State-Level Analysis

5.1 Introduction

In a developing economy, wage policy is faced with a real conflict between the need of workers for larger consumption and demands of the economy for a higher rate of capital formation. This conflict is reflected in thinking of all the responsible bodies on the issue of wage determination. Thus while there is considerable emphasis on the promotion of workers’ well-being in the First Five Year plan, it is pointed out "the rate of progress has to be determined not only by the need of workers but also by the limitations of country’s resources…..On the side of labour, there should be a keen realization of the fact that for a developing economy, it cannot build for itself and the community a better life, except on the foundations of a higher level of productivity to which it has to make a substantial contribution itself." [1] Similarly the fair wage committee which was appointed by Government of India to go into the whole question of wage fixation observed that "the objective is not merely to determine wages which are fair in abstract, but to see that employment at existing levels is not only maintained, but if possible, increased. From this point of view, it will be clear that the level of wages should enable the industry to maintain production with efficiency" [2] Again it is emphasized in the third plan that "neither the exercise of their organized strength in industrial conflicts nor laws and the interventions of state can help the workers much in realizing their aspirations. Their gains can arise only out of the strength and dynamism of the economies." [3] 

In the initial phases, however, a policy of wage freeze and wage restrain was of considerable help in stepping up the rates of capital accumulation and industrial development. The negative aspect of the wage policy is common to the capitalist and planned economies and seems to suggest that the exploitation of labour, in the sense of rising productivity going with stagnant or even declining wage rates, provides the main basis for accelerated rates of development in the early phases of economic growth.

The historical experience of industrialized economies is however, an unsatisfactory guide to our wage policy, since absolute level of their wages and living were never so low. But at that wage levels workers are unable to procure the basic supply of goods and services needed to maintain them in reasonable state of health and efficiency. The desired effects of introducing minimum efficiency wage, may therefore fail to be realized so long as other aspects of the industry are not set in order. The Fair Wage committee unanimously recommended that "the fair wage should on no account be less than the minimum wage" which in its view "must provide not merely for the bare sustenance of life but for the preservation of efficiency of workers" [4] . While the lower limit of the fair wage must obviously be the minimum wage, the upper limit is equally set by what may broadly be called the capacity of the industry to pay, determined on the basis of "(i) fair return on capital and remuneration to management, and (ii) a fair allocation to reserve and depreciation so as to keep the industry in a healthy condition".

At its fifteenth session held in July 1957, the Indian Labour Conference specified the physical norms relating to workers’ consumption which would underline the need-based minimum wage. Evidently, the need for enforcing the need-based minimum wage has to be compromised with the principal of industry’s capacity to pay. Workers’ interests demand adequate provision for maintenance and addition to capacity stock as much as for improvements in real wages. However, the twin objective can be readily fulfilled when the revenues of the industry are expanding relative to the imports of various resources. An industry’s capacity to pay is ordinarily indentified with its profitability. The larger the profits, the bigger the amount that can be used for granting wage increases after due allowance has been made for fair return on capital and fair allocation to reserve and depreciation. The profits of an industry depend on the prices of the product relative to the input prices and on productivity trends. There may be circumstances when large gains accrue to the industry through relative rise in product prices. But such circumstances are fortuitous and cannot be relied upon for obtaining regular increase in factor compensation. Normally it is productivity increment that provides the main source of rise in real earnings of inputs in the industry.

Since then, ‘Wages for the organized sector workers are shooting through the roof’ is a familiar refrain in the Indian context. There is a concerted attempt on the part of scholars and other analysts of the labour market to project a view point that workers in the organized sector as such are privileged lot basking in the sunshine under the array of protective labour legislation. Trade unions thrive in a protected labour market and the organized labour get away with disproportionately large share of the national produce by way of wage increase and added perquisites. The argument runs further to say that organized labour cling on to their protected jobs through union militancy and aggressive collective bargaining and thereby hold the entire country to ransom, effectively pre-empting any possibility for technological changes, productivity improvements and even further increase in employment.

A candid assertion of the above position comes in a recent study prepared by the World Bank. Fallon and Lucas (1991), using fragmentary data for 36 manufacturing industries of India during the period 1959-60 to 1981-82, argue that industrial wages have grown significantly relative to consumer prices of industrial workers, and that the wage growth abetted by union militancy and job security regulations prevalent in India have resulted in a long term reduction of employment by about 18 per cent in the selected group of industries. A variant of the same argument can also be found in an earlier study by Lucas (1988) where it is argued that real product wages in the manufacturing steadily increased by some 86 per cent between 1960-61 and 1979-80 and much of the wage increase can be attributed to the prevalence of trade union militancy, minimum wage regulations and job security laws.

The apparent rise in the manufacturing wages remains a point of concern in several studies. Such an increase runs contrary to the expectations of an economy undergoing structural adjustment programmes. The Country Economic Memorandum of the World Bank (1991) also brings out that real wages of manufacturing workers in the organized sector consistently increased during the 1960s and 1970s. In the case of public sector employees there was nearly a hundred per cent increase in the real wages during 1965-66 to 1984-85. More pointedly the report draws attention to the need for curbing the rise in wages of government employees. In a recent study Ahluwalia (1991) also points out that between 1980-81 and 1985-86 there was 34 per cent increase in real wages of manufacturing sector workers. The study also notes that such sharp increase in wages possibly contributed to decline of manufacturing employment which took place during the same period.

The main thrust of studies referred to above has been to bring out that real earnings of workers in the manufacturing industries of the organized sector in India have had a pronounced tendency to increase quite consistently during the preceding decades. At an aggregative level it possibly cannot be disputed that real wages in the organized manufacturing industries have tended to increase in India. This has been conceded to even by the scholars from trade union background who have carried out studies on wage trends in India. For instance the study by Tulpule and Datta (1988) brings out that the annual average wages of manufacturing workers in the organized sector increased in real terms by more than 50 per cent during the period from 1960 to 1983. They, however contest the popular notion that workers corner a disproportionately large share of the wealth created by the organized industry and that productivity levels have remained stagnant in them. A recent study by Nagaraj (1992) also refers to the notable increase in real earnings of manufacturing workers in the factory sector which took place during the period 1968-1986. The study further points out that the observed rise in wages is linked to a narrowing of the gap between wages and productivity in the manufacturing sector.

The present study aims to take a fresh look at the whole question of rising wages in the organized industries. The industrial performance of different states revels that the growth rate of industrial output and employment vary over different states. One of the reasons for such variation may be the variation of growth rate of wage rate for industrial labour across different states. Thus our objective is to provide a comprehensive analysis for the inter-state variation in the growth of wage rate for the industrial labour for the period 1980-81 to 2005-06. And also to ascertain whether the increase in wage is applicable to different categories of manufacturing industries for which the wage data are separately available. Rest of the chapter is laid out in following fashion. Section 2 gives details on the data used along with the methodological aspects linked with the estimation. Section 3 and 4 explore the movement and growth in wages respectively. In the last section we draw our conclusions and present some policy recommendations.

5.2 Data, Variables and Measurement

For the purpose of analysis of wage rate, unit level data for 2-digit industry groups of Indian Organized Manufacturing Sector is used. These data are annually complied by and publish in the Annual Survey of Industries (ASI) bought out by the Central Statistical Organization of the Government of India. Also the data is drawn from an electronic database brought out by the Economic and Political Weekly in its volume II (in 2007) using the results of Annual Survey of Industries. This is the same data set as used in Goldar (2009). Present study will be covering the time period from 1980-81 to 2005-06. The time period chosen for the study will bring out the clear picture regarding the trends in wage rate per worker in the pre and post reform period. With the said aim, the growth rate of wages per worker in the organized manufacturing sector have been computed for the sub periods, 1980-81 to 1990-91 (pre-reform period) and 1991-92 to 2005-06 (post-reform period). The regional cover consists of sixteen major states in India and the analysis is restricted to thirteen industries according to a two digit-level classification of the NIC.

In this study we shall primarily deal with the variable ‘wages to workers’ and ‘number of workers’. Wages to workers only includes the direct money wages i.e. the basic wage received by the workers. Since our concern is to examine the trend in earnings of labour across states in different industry groups, this variable is the most suitable to study.

Rising wage inequality among workers in developed countries, especially in USA and UK, have been well documented. Studies on developing countries, particularly Latin American countries since the 1980s, have also been in public domain (Wood 1997, Katz and Autor 1999). While studies on wage differentials in India, particularly the post-reform dynamics of it, have been sparse, handful of those that exist (Kingdon 1998, Kindon and Unni 2001, Duraiswamy 2002, Galbraith 2004, Dutta 2005) either focus on specific industries, or specific types of workers, or ignore the possibility of segmented labour markets and hence segmented wage functions for different groups. The present work therefore adds value to existing literature as it takes into consideration all wage workers in the economy – casual and regular, male and female and in all occupations and regions. Disparities across states and in industries are studied using coefficient of variation (CoV).

5.3 Variation in Wages

We have furnished the rate of growth of wage rate for industrial labour for different states of India, within different manufacturing industries. We have also worked out, for each industrial state as well as for each industry, the coefficient of variation in earnings. It is one such index which measures the quantum of disparities and is abbreviated as CoV. It is defined as a percentage standard deviation per unit of mean i.e.

=

Since coefficient of variation is a dimensionless number, so comparison between data set with widely different means, we have used CoV instead of standard deviation.

In the inter-industry analysis as per table 5.1 we have noticed no discernible trend and that the coefficient of variation, on an average, has been moving in the range of 0.225 in Manufacture of Cotton Textiles (23) to 0.494 in manufacture rubber, plastic, petroleum and coal products and processing of Nuclear Fuels (31). In the Manufacture of Cotton Textiles (23) the coefficient moved between 0.169 in 2000-01 and 0.281 in 1987-88 reflecting that the disparities in earnings of labour have decreased over time in this particular industry. Whereas, in 31 numbers shows a different picture. The coefficient in this industry moved in the range of 0.391 in 1993-94 to 0.692 in 2000-01 stating that the disparities in the earnings have increased over time in this industry. If we look at the performance of Manufacture of food product industry (20) and Tobacco and Tobacco Products (22), CoV showed a decreasing trend over a period of time. In 1984-85 CoV was registered at 0.454 which decreased to 0.369 in 2000-01 and moved to 0.405 in 2005-06 for the industry 20. Also in industry 22 the same trend was observed over time with little different figures. In this industry CoV moved from 0.456 in 1984-85 to 0.361 in 2000-01 and reached at 0.385 in 2000-01. Both these industries showed that the CoV decreased over time, approving the fact that disparity in the earnings of labour in these industry also decreased. This means it did not showed much of variations in the wage pattern of industrial workers in these industries. At the other end if we look at the same movement of CoV in Basic Metals industry (33) and Manufacture of Transport equipments and parts (37), the story is different. In industry 33, CoV moved from 0.459 in 1984-85 to 0.513 in 2000-01 and further to 0.511 in 2005-06. The same increasing trend was observed for industry 37. In this industry CoV increased from 0.365 in 1984-85 to 0.471 in 2000-01 and further to 0.499 in 2005-06. This shows that the wage patterns in these industries were varying over time bringing in the disparities in earnings of labour in these industries.

Table 5.2 shows the inter-state movement of coefficient of variation (CoV) over the period of time. The lowest average was observed for Delhi (DL) at 0.275 followed by 0.290 for Uttar Pradesh (UP). Whereas, the highest coefficient value was observed for Assam (AS) as 0.739 followed by Bihar (BI) and Kerala (KE) as 0.647 and 0.504 respectively. If we look at Delhi’s value of CoV, it moved from 0.326 in 1981-82 to 0.192 in 2000-01 but increased a bit to 0.244 in 2005-06. The overall trend was observed to be decreasing for the state i.e. the disparities in earnings of labour were decreasing and the wages were distributed equally among the labour in this state. The same trend was observed for UP also in which the value of coefficient in 1981-82 observed to be 0.39, which decreased to 0.217 in 2000-01 but increased to 0.284 in 2005-06. And if we compare these values with the values observed for Assam, Bihar and Kerala, the movement seems to be opposite. For these states, the disparity in wages seems to be increasing. In Assam (AS) the value of the coefficient increased from 0.466 in 1981-82 to 0.562 in 2005-06. In Bihar (BI) the movement was in the band of 0.652 and 0.926 in 1980-81 and 2005-06 respectively. Also the figures for Kerala were observed to be increasing from 0.478 in 1981-82 to 0.639 in 2005-06.

Table 5.3 and 5.4 reports the average CoV for the two sub-periods separately along with the entire time period. According to the figures reported and support from the earlier literature, it is evident that there has been widening disparities in the wage distribution across states and also within industries. It is widely maintained that one of the causes of the growth of wage inequality in many industrialized countries is a change in the relative demand for skilled workers (Freeman, 1995; Gottschalk and Smeeding, 1997; De Santis, 2002; Acemoglu, 2003). There is little agreement, however, about the underlying causes of the change in the structure of labour demand. Some empirical evidence shows a relationship between an increase in international trade, wage dispersion and the level of employment, which has led a number of economists to conclude that recent internationalization of economies has contributed to the increase in the dispersion of wages and unemployment (Sachs and Shatz, 1994; Leamer, 1996; Baldwin and Cain, 2000; Haskel and Slaughter, 2001). This proposition is sustained by the theorems of Heckscher and Ohlin and Stolper and Samuelson (HO/ SS). In contrast, other economists have found that it was technological change that had the strongest impact on the structure of labour demand, since it is labour saving, especially of less-skilled labour (Berman et al., 1994, 1998; Desjonqueres et al., 1999). Other causes have also been advanced to explain the increase in income inequality. These include: changes in industrial structure and the decline of institutions, especially decreasing union density and bargaining power (Gosling and Machin, 1995); reductions in minimum wages (Fortin and Lemieux, 1997); and the migration of less skilled workers (Borjas et al., 1992). However, these tend to be complementary to the two main causal factors - trade and/or technology.

The most immediate effect of trade liberalization is a reduction in the extent to which domestic manufacturers can operate in protected markets. The reduction or elimination of trade barriers and tariffs combine to turn any markets that were previously highly imperfect into markets that are now more contestable, and hence generate lower prices and reduced producer rents. To the extent that such rents were previously shared with employees, wages will also fall after trade liberalization. Other changes in the wage structure would also be expected as resources shift between industries.

As an effect of trade liberalization, one can observe a rapid inflow of foreign technology because of both FDI and increased imports. The technologies being introduced through FDI include new management practices and new forms of work organization. The in-flowing technology is assumed to be skill-biased because it is mainly designed in the industrialized world which is skill intensive. The incorporation of new technologies will therefore be accompanied by a change in labour demand in favour of skilled workers. The effect of the increase in the relative demand for skilled labour will be to increase the relative wages and thus increase inequality. The magnitude of the effect will vary according to the elasticities of supply of skilled and unskilled labour, and the elasticity of substitution.

Using Annual Survey of Industries data, Nagaraj (2004) also finds that between 1995-96 and 2000-01, 15% of the workers in the organized manufacturing sector lost their jobs. In contrast, the employment of supervisors increased steadily during this period. This suggests that the deregulation of labour law can be one of the reasons for increasing the labour demand for skilled labour, thereby increasing wage inequality. This skill upgrading in the urban labour market and comparatively developed states might be realized via the adoption of new technology induced by foreign direct investment and increasing competition. Whereas for the states like Assam and Bihar, the supply was not matching with the demand for skilled labour, bringing in different wage patterns over time and thus increasing wage disparities.

Kijima (2003) found in his work that the increasing wage inequality before 1993 was accounted for by the unequal distribution of observed skills, while the rise in wage inequality after 1993 was mainly due to increase in the premium on skills acquired from observed factors. It is possible that the inequality in urban India will continue to increase if the corrective measures are not undertaken. However, policy makers should not rely on policies that artificially compress the wage differences across skill groups since they could reduce human investment and, therefore, may have a negative effect on the long run growth. There is no doubt that more flexible functioning of the labour market is urgently called for. In order to achieve equitable growth in India, it is imperative to explore how labour markets function and what their implications are for income distribution.

The common theme of these alternative explanations is that it may not be valid to assume that the impact of trade liberalization on developing countries will be symmetrically opposite to its impact in developed countries. It follows that what-ever the empirical evidence informs us about the effects of trade liberalization in developing countries, the conclusions should not necessarily be used to alter our perceptions about the drivers of the change in wage inequality in the developed world. Nevertheless, the impact of openness on wages in less developed countries is a subject of great importance in its own right. Notwithstanding the studies reviewed above, there remain important questions as to how far the conjecture that reforms may enhance skill demands can be generalized. It is also of interest to examine the extent to which reforms leads to an overall wage reduction for all workers in the organized sector.

5.4 Growth in Wages

Further we have examined the rate of growth of wages per workers among different industries of the factory sector for different states. This is done for two sub-periods i.e. from 1980-81 to 1990-91 (pre-reform period) and 1991-92 to 2005-06 (post-reform periods). In addition to this, the results for the entire period are also reported in table 5.5.

The maximum growth of wages per worker in Manufacture of Food Products (20) was observed in Madhya Pradesh (MP) which is 14.52, whereas West Bengal (WB) showed the lowest growth rate of 8.09 in the same industry for entire period from 1980-81 to 2005-06. The state which did best in terms of growth rate of wages per worker in pre-reform period i.e. from 1980-81 to 1990-91 was Bihar, showing a double digit growth at 24.34. And the same state in the post reform period could only manage to achieve growth rate of 7.86. Punjab was the state which showed the lowest growth rate in pre-reform period but unlike Bihar, the difference in Punjab’s growth rate between post and pre reform period was not much, these were 11.93 and 9.81 respectively. Whereas in this industry, West Bengal registered the lowest post reform period’s growth rate at 5.58 as it did for the whole period.

Manufacturing of cotton textiles (23) showed the maximum overall growth rate in wages per worker for the entire time span taken for the study. Madhya Pradesh is a state which registered the maximum growth rate in manufacture of wood and wood products (27). Andhra Pradesh did well above rest all states in three industries namely basic metals and alloy industries (33), manufacture of metal products and parts (34) and manufacture of machinery and equipments (35) registering growth rate of 16.172, 11.661 and 11.884 respectively.

Bihar showed a surprising trend in the growth rate, especially in the post reform period. It registered negative growth rate in six industries, out of fourteen taken for study. A negative growth rate of -7.224 in basic metals and alloy industries (33), followed by a further lower growth of -5.105 and -3.195 in manufacture of machinery and equipments (35) and manufacture of industrial organic and inorganic chemicals respectively. Although it showed negative values but the positive growth values in the pre-reform period outweighs the negative growth values, making it a decently growing state.

Though there are differences in the experiences of different industry groups in regard to growth of real wages, the overall conclusion that may be drawn from Table 5.5 is that there has been an appreciable slowdown in the growth of wages in organized manufacturing in India the 1990s.

During the 1990s, there was considerable trade liberalisation in India, as a part of India’s economic reforms program. [5] The average effective tariff rate was reduced from about 86 per cent in 1989-90 to about 40 per cent in 1994-95, and further to about 30 per cent in 1999-2000 (Goldar, 2002). [6] The collection rate of import duty came down similarly from about 52 per cent in 1989-90 to about 29 per cent in 1995-96, and further to about 24 per cent in 1999-2000. The reduction in tariff rates was accompanied by substantial relaxation of quantitative restrictions on imports. The non-tariff barrier (NTB) coverage in manufacturing declined from 90 per cent by the end of 1990 to 36 per cent in May 1995 (Pursell, 1996). Within manufacturing, the NTB coverage for machinery and intermediate goods declined considerably between 1990 and 1995. In 1995, the NTB coverage for machinery was only 10 per cent and that for manufactured intermediate goods only 12 per cent. The process of relaxation of quantitative restrictions on imports continued beyond 1995. Between 1995-96 and 1999-2000, the NTB coverage declined significantly in most industry groups (Goldar, 2002). For aggregate manufacturing, the decline in NTB coverage was from 87 per cent in 1988-89 to 46 per cent in 1995-96 and further to 28 per cent in 1999-2000 (NCAER, 2000).

On theoretical grounds, India’s trade liberalisation is expected to lead to a shift in its industrial structure towards labour intensive industries. Also, it should provide greater encouragement to the application of labour intensive methods of production. [7] In as much as this causes an increase in the demand for labour in industries, there should be an upward pressure on the real wages in the industrial sector. Import liberalisation may additionally contribute to higher wages through its productivity enhancing effects. Thus, a favourable effect of import liberalisation on industrial wages is to be expected. However, in reality, there has not been any significant acceleration in the growth of wages in organized manufacturing in India in the post-reform period. Rather, the growth rate of real wages in the 1990s has been lower than that in the 1980s (Goldar, 2000, 2002; Tendulkar, 2000).

One might think that the fall in the growth rate of real wages in organized manufacturing the 1990s was caused by some changes in the composition of workers. However, there are no indications that the average wage was pulled down in any significant measure by changes in the composition of workers. The proportion of directly employed workers out of total workers engaged in organized manufacturing did not decline in the post-reform period. Rather, it increased slightly from about 86 per cent in 1989-90 to about 87 per cent in 1995-96 (Goldar 2002). Further, there has been a slight decrease, not an increase, in the proportion of women workers in aggregate organized manufacturing in the post-reform period, from 14.2% in 1989-90 to 11.5% in 1995-96 (Goldar, 2002, Table 37). This cannot obviously explain a slowdown in growth of real wages.

To understand the causes of deceleration in growth of wages, it would be useful to examine the changes in the growth rate of total factor productivity, labour productivity and in the ratio of wages to labour productivity i.e. to see the income share of labour in value added. The exercise will be taken care of in the following chapters.

5.5 Conclusion

In retrospect our review of the trend in earnings clearly brings out there were considerable inter-temporal differences in the movement of earning indices among various industries. Such movement in earnings was not, however, uniform in the factory sector. Workers in high wage capital intensive industries – who presumably exercised a higher bargaining edge in the labour market – were the principal beneficiaries of any increase in money wages. On the other hand, there was no perceptible increase in earnings of employees within low wage and labour intensive industries.

Our review of the theoretical and empirical literature of the impact of trade liberalization on the distribution of wages revealed that the effects may be ambiguous as soon as we move away from the confines of the traditional HO/SS theory. Rather a range of recent theories allow for the possibility that in period of skill – biased technical change, within developing countries, generates a period of changing relative wages. But this also depends on the relevant supply trends and supply elasticities. The predictions from increasing international trade for developing countries are therefore not simply the symmetric counterparts of those for the industrialized world. Accordingly, we have examined the experience of India in some detail. India is a large developing country which undertook a concentrated bout of trade reform in the early 1990s. The data show that wages tend to be lower in post reform period in the organized manufacturing sector. But there were considerable inter-temporal differences in the movement of earning indices among various industries.

Our main conclusion in respect of interaction of reforms with growth in sectoral wages, is that overall, allowing for education and experience, wages in the industrial sector were lowered substantially by increasing the degree of openness following liberalization, consistent with the view that the reforms raised the degree of competition in industries and thereby reduced rents. These results are consistent with the view that the technology introduced after trade liberalization, much of it transferred through capital imports and FDI, was largely skill-biased relative to the previously installed technology. Wages were also lowered indicating either a degree of spill-over, or the effects of other changes such as privatization or deregulation that took place later in the 1990s. Another possible reason for the slowdown could be identified as weakening of trade union strength in manufacturing industries in the post – reform period.

The adverse effects of trade reforms on growth of real wages through the elimination of rents could have been countered by an upward pressure on wages emanating from a tightening of industrial labour market, if trade reforms had led to a large increase in the demand for labour. This has, however, not happened so far. There was a marked acceleration in employment growth in organized manufacturing in the 1990s (Goldar 2000, 2002; Tendulkar 2000), but this was not sufficient to cause a tightening of the labour market, because there was no such acceleration in employment growth in unorganized manufacturing which accounts for bulk of the industrial employment and thus influences wage determination.

Next comes the explanation for inter-state variations in the growth rate of wages in India. Indian states not only differ considerably in terms of economic performance and productive structure but they also display wide disparities in terms of physical, social and economic infrastructure. And therefore India continues to face the paradox of some underdeveloped or developing states along with the existence of some progressive states. Through the measurement of growth, it can be inferred that the growth rate of wages in different states of the country is not uniform, and there exists a large-scale inter-state variations. Therefore due to the existence of large-scale inter-state disparities, it is likely that any single explanation of determination of wage rate may not come out as meaningful. Instead, we can expect that the determination of wage rate vary over different states. Post reform macro experiences in India show that higher rate of economic growth has been achieved with disproportionate inequalities across regions leaving more space for socio – economic exclusion to continue, especially in lagging states and regions. These necessitate the multivariate analysis to determine the influence of explanatory variables on the wage rate for industrial workers.

Also in order to ensure equitable distribution of income across different states of the country, it may be essential to improve or control the movement of wage rate of the respective states that lag behind or are ahead over the other states with respect to the rate of growth of wage rate. Now the question is what should be the appropriate policy in this direction? The appropriate policy regarding specific state can be framed giving emphasis on the variables that are significant in determining the wage rate in that particular state. For example the demand side variables can be per capita state domestic product and productivity of labour. Whereas degree of urbanization can be considered as both demand side as well as supply side variable. Consumer price index for industrial labour can be considered as either policy variable or institutional variable. It should be kept in mind that the responsiveness of wage rate with respect to a particular variable is not same for all the states and hence the policy for improving or controlling wage rate growth for particular state can be framed by considering the significant explanatory variable.

We shall conclude this chapter by raising a further question i.e. to look at the degree of correspondence between the long term movement of the three indices, namely earnings, employment and productivity level of different states. Whether and how far these indices have influenced the movement of each other is an interesting analytical question which requires attention. The following chapters will empirically address these questions raised and try to possibly answer them in detail.

Table 5.1: Magnitude of Relative Measure of Dispersion (Coefficient of Variation) of Per Worker Wage Rate Within Industries

S.No

Year/NIC-87

20

22

23

27

28

30

31

32

33

34

35

37

38

1

1980-81

0.45

0.475

0.231

0.243

0.236

0.37

0.478

0.232

0.474

0.348

0.25

0.282

0.47

2

1981-82

0.517

0.472

0.229

0.251

0.233

0.338

0.534

0.308

0.473

0.342

0.245

0.398

0.458

3

1982-83

0.541

0.481

0.272

0.286

0.208

0.313

0.413

0.276

0.44

0.283

0.272

0.381

0.429

4

1983-84

0.439

0.434

0.22

0.266

0.194

0.35

0.466

0.362

0.43

0.395

0.259

0.39

0.456

5

1984-85

0.454

0.456

0.244

0.26

0.278

0.367

0.451

0.279

0.459

0.408

0.287

0.365

0.405

6

1985-86

0.429

0.403

0.236

0.268

0.237

0.364

0.439

0.291

0.449

0.383

0.256

0.381

0.449

7

1986-87

0.396

0.392

0.264

0.256

0.197

0.405

0.484

0.279

0.44

0.396

0.297

0.384

0.466

8

1987-88

0.423

0.426

0.281

0.211

0.237

0.384

0.459

0.287

0.446

0.373

0.294

0.411

0.501

9

1988-89

0.346

0.371

0.275

0.297

0.254

1.033

0.448

0.311

0.464

0.372

0.306

0.429

0.465

10

1989-90

0.393

0.415

0.225

0.281

0.22

0.372

0.428

0.276

0.41

0.277

0.333

0.446

0.484

11

1990-91

0.417

0.409

0.213

0.251

0.174

0.386

0.393

0.294

0.421

0.244

0.295

0.362

0.329

12

1991-92

0.405

0.386

0.227

0.247

0.159

0.386

0.414

0.268

0.354

0.255

0.295

0.38

0.323

13

1992-93

0.408

0.354

0.224

0.245

0.176

0.36

0.427

0.263

0.379

0.281

0.27

0.362

0.299

14

1993-94

0.394

0.368

0.197

0.245

0.178

0.344

0.391

0.276

0.532

0.292

0.276

0.363

0.323

15

1994-95

0.429

0.352

0.254

0.287

0.188

0.345

0.404

0.269

0.486

0.308

0.26

0.365

0.334

16

1995-96

0.43

0.346

0.216

0.239

0.224

0.358

0.45

0.314

0.487

0.298

0.292

0.396

0.351

17

1996-97

0.425

0.349

0.205

0.311

0.204

0.325

0.447

0.243

0.49

0.268

0.283

0.418

0.293

18

1997-98

0.457

0.41

0.201

0.555

0.248

0.31

0.522

0.356

0.497

0.249

0.257

0.453

0.318

19

1998-99

0.416

0.462

0.22

0.303

0.26

0.372

0.639

0.384

0.429

0.363

0.482

0.491

0.355

20

1999-2000

0.375

0.386

0.233

0.618

0.289

0.372

0.673

0.443

0.45

0.251

0.335

0.47

0.404

21

2000-01

0.369

0.361

0.169

0.312

0.269

0.368

0.692

0.39

0.513

0.342

0.405

0.471

0.354

22

2001-02

0.386

0.384

0.232

0.308

0.292

0.385

0.56

0.356

0.523

0.321

0.261

0.525

0.388

23

2002-03

0.375

0.416

0.201

0.343

0.29

0.43

0.636

0.373

0.512

0.328

0.272

0.464

0.255

24

2003-04

0.377

0.432

0.203

0.351

0.255

0.409

0.563

0.369

0.536

0.435

0.287

0.47

0.349

25

2004-05

0.395

0.412

0.179

0.347

0.314

0.432

0.518

0.371

0.486

0.448

0.331

0.506

0.311

26

2005-06

0.405

0.385

0.21

0.353

0.286

0.422

0.521

0.351

0.511

0.384

0.298

0.499

0.345

 

Average

0.417

0.405

0.225

0.305

0.235

0.396

0.494

0.316

0.465

0.332

0.296

0.418

0.381

Source: Author’s own calculations using ASI unit level data

Table 5.2: Magnitude of Relative Measure of Dispersion (Coefficient of Variation) of Per Worker Wage Rate Across States

S.No

Year/ States

AP

AS

BI

DL

GU

HR

KA

KE

MP

MH

OR

PU

RJ

TN

UP

WB

1

1980-81

0.451

0.651

0.536

0.25

0.374

0.278

0.45

0.472

0.623

0.376

0.666

0.348

0.423

0.379

0.384

0.333

2

1981-82

0.466

0.781

0.652

0.326

0.37

0.275

0.441

0.478

0.602

0.365

0.622

0.271

0.385

0.393

0.397

0.285

3

1982-83

0.448

0.458

0.615

0.333

0.361

0.267

0.436

0.467

0.601

0.376

0.66

0.29

0.398

0.425

0.37

0.294

4

1983-84

0.394

0.684

0.552

0.373

0.36

0.31

0.363

0.431

0.589

0.355

0.608

0.274

0.344

0.369

0.39

0.292

5

1984-85

0.377

0.715

0.492

0.372

0.398

0.314

0.359

0.431

0.589

0.367

0.589

0.263

0.412

0.358

0.363

0.277

6

1985-86

0.403

0.673

0.508

0.286

0.365

0.311

0.33

0.423

0.56

0.362

0.569

0.271

0.389

0.368

0.353

0.302

7

1986-87

0.405

0.643

0.489

0.346

0.393

0.332

0.334

0.446

0.497

0.376

0.557

0.216

0.348

0.372

0.294

0.344

8

1987-88

0.393

0.73

0.465

0.337

0.397

0.371

0.375

0.434

0.497

0.377

0.572

0.293

0.368

0.361

0.301

0.348

9

1988-89

0.377

0.693

0.461

0.398

0.395

0.368

0.318

0.436

0.49

0.398

1.559

0.27

0.352

0.366

0.288

0.347

10

1989-90

0.437

0.657

0.543

0.256

0.372

0.273

0.345

0.455

0.502

0.417

0.496

0.293

0.371

0.407

0.282

0.334

11

1990-91

0.364

0.64

0.503

0.264

0.388

0.31

0.311

0.445

0.388

0.427

0.486

0.269

0.292

0.343

0.246

0.291

12

1991-92

0.355

0.646

0.412

0.28

0.34

0.305

0.342

0.445

0.327

0.455

0.421

0.286

0.294

0.334

0.258

0.296

13

1992-93

0.346

0.665

0.471

0.25

0.359

0.28

0.299

0.47

0.357

0.425

0.453

0.293

0.333

0.324

0.244

0.31

14

1993-94

0.388

0.591

0.59

0.227

0.324

0.307

0.326

0.448

0.37

0.412

0.311

0.331

0.274

0.339

0.232

0.313

15

1994-95

0.35

0.691

0.578

0.214

0.298

0.324

0.286

0.46

0.449

0.422

0.439

0.347

0.282

0.33

0.252

0.317

16

1995-96

0.398

0.669

0.542

0.244

0.307

0.369

0.37

0.529

0.493

0.438

0.495

0.399

0.28

0.369

0.227

0.34

17

1996-97

0.457

0.753

0.566

0.281

0.265

0.307

0.327

0.473

0.47

0.419

0.513

0.232

0.295

0.326

0.193

0.325

18

1997-98

0.544

0.761

0.625

0.293

0.305

0.396

0.375

0.567

0.365

0.432

0.508

0.245

0.312

0.356

0.295

0.464

19

1998-99

0.512

1.024

0.819

0.25

0.325

0.331

0.265

0.552

0.382

0.377

0.48

0.42

0.329

0.44

0.29

0.334

20

1999-2000

0.456

0.716

0.974

0.208

0.284

0.343

0.251

0.591

0.313

0.384

0.544

0.335

0.304

0.36

0.295

0.414

21

2000-01

0.61

0.912

1.027

0.192

0.315

0.327

0.254

0.533

0.492

0.386

0.545

0.296

0.251

0.406

0.217

0.427

22

2001-02

0.528

0.851

0.846

0.225

0.273

0.36

0.293

0.609

0.309

0.388

0.67

0.368

0.282

0.388

0.316

0.413

23

2002-03

0.572

0.946

0.842

0.232

0.308

0.334

0.248

0.634

0.337

0.362

0.671

0.377

0.276

0.404

0.249

0.392

24

2003-04

0.596

0.931

0.899

0.231

0.313

0.339

0.276

0.611

0.314

0.388

0.591

0.359

0.274

0.438

0.26

0.405

25

2004-05

0.579

0.856

0.889

0.25

0.341

0.278

0.291

0.627

0.326

0.384

0.594

0.386

0.31

0.433

0.254

0.469

26

2005-06

0.562

0.884

0.926

0.244

0.301

0.286

0.3

0.639

0.309

0.359

0.568

0.347

0.307

0.374

0.284

0.42

 

Average

0.453

0.739

0.647

0.275

0.34

0.319

0.329

0.504

0.444

0.393

0.584

0.311

0.326

0.375

0.29

0.349

Source: Author’s own calculations using ASI unit level data

Table 5.3: Average Coefficient of Variation of Per Worker Wage Rate Within Industries

Years / NIC-87

20

22

23

27

28

30

31

32

33

34

35

37

38

1980-81 to 1990-91

0.437

0.43

0.245

0.261

0.224

0.426

0.454

0.29

0.446

0.347

0.281

0.384

0.447

1991-92 to 2005-06

0.403

0.387

0.211

0.338

0.242

0.375

0.524

0.335

0.479

0.322

0.307

0.442

0.333

1980-81 to 2005-06

0.417

0.405

0.225

0.305

0.235

0.396

0.494

0.316

0.465

0.332

0.296

0.418

0.381

Source: Author’s own calculations using ASI unit level data

Table 5.4: Average Coefficient of Variation of Per Worker Wage Rate Across States

Years / States

AP

AS

BI

DL

GU

HR

KA

KE

MP

MH

OR

PU

RJ

TN

UP

WB

1980-81 to 1990-91

0.410

0.666

0.529

0.322

0.379

0.310

0.369

0.447

0.540

0.381

0.671

0.278

0.371

0.376

0.333

0.313

1991-92 to 2005-06

0.484

0.793

0.734

0.241

0.311

0.326

0.300

0.546

0.374

0.402

0.520

0.335

0.294

0.375

0.258

0.376

1980-81 to 2005-06

0.453

0.739

0.647

0.275

0.340

0.319

0.329

0.504

0.444

0.393

0.584

0.311

0.326

0.375

0.290

0.349

Source: Author’s own calculations using ASI unit level data

Table 5.5: Growth of Wages Per Worker in industries across states

NIC-87

20

22

23

27

28

Year/

State

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

AP

16.502

9.191

11.716

13.992

8.058

10.195

10.648

9.207

9.965

15.201

6.146

9.746

12.227

8.561

10.867

AS

12.129

6.909

9.216

19.926

17.178

10.670

10.463

6.151

9.712

12.607

5.779

10.057

15.914

12.396

15.137

BI

24.336

7.866

12.710

10.129

15.847

13.112

12.165

6.594

8.997

13.554

1.648

5.727

9.938

10.099

11.008

DL

12.478

7.789

10.826

11.189

7.546

9.865

11.735

4.562

6.638

12.387

5.754

8.715

12.737

5.975

9.034

GU

16.396

9.242

12.210

11.867

12.620

13.234

11.259

6.639

7.942

9.507

8.251

9.631

12.984

7.337

9.838

HR

16.333

10.094

12.683

14.982

5.811

10.360

11.212

9.026

9.866

9.697

5.814

8.706

13.501

6.830

10.259

KA

19.535

7.728

12.895

17.298

12.485

13.361

8.779

8.561

9.156

13.762

8.002

10.229

13.699

7.581

10.751

KE

16.522

8.152

11.582

12.753

7.154

9.760

10.297

5.386

8.405

8.610

7.074

8.361

10.041

8.095

10.152

MP

21.184

9.942

14.521

13.658

6.974

10.653

9.222

11.445

8.720

13.543

12.615

11.822

13.857

5.962

9.747

MH

18.681

6.307

11.055

11.295

7.117

8.897

11.970

6.472

9.288

11.861

9.897

10.480

12.553

7.131

9.452

OR

19.010

6.683

10.974

15.629

4.470

9.593

10.116

3.677

7.297

13.170

11.490

12.616

15.454

5.424

9.821

PU

11.934

9.811

11.510

11.026

6.649

9.568

12.307

8.284

11.004

15.025

5.472

9.160

13.740

7.128

10.523

RJ

16.265

8.784

12.834

16.127

6.789

10.148

9.522

7.130

9.325

9.082

6.612

9.782

14.060

2.728

8.608

TN

16.523

8.988

12.196

13.040

10.085

11.846

10.289

2.835

7.109

10.171

10.186

10.095

9.715

7.831

9.383

UP

18.300

8.932

12.442

19.857

5.843

11.181

8.790

7.300

8.266

16.521

9.120

11.647

12.299

8.264

10.471

WB

13.113

5.581

8.094

10.207

5.855

5.584

10.206

8.361

9.765

9.903

5.881

8.691

9.975

8.072

9.424

Source: Author’s own calculations using ASI unit level data

Table 5.5: Growth of Wages Per Worker in industries across states (Cont.)

NIC-87

30

31

32

33

34

Year/

State

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

AP

13.159

6.961

10.068

10.050

8.325

9.358

11.624

8.988

10.704

10.959

16.558

16.172

17.237

8.237

11.661

AS

5.581

8.475

9.123

12.693

10.527

12.013

7.695

6.449

9.489

9.518

7.455

7.114

12.219

3.825

7.956

BI

13.042

-3.195

5.621

15.275

16.323

14.547

8.197

-0.380

4.458

11.398

-7.224

1.341

15.699

8.392

11.527

DL

11.692

5.745

9.272

12.622

7.567

10.751

14.251

4.854

9.901

10.218

6.635

9.512

11.979

9.782

11.343

GU

12.047

8.204

10.051

12.435

12.068

12.459

10.299

11.144

11.459

9.892

11.646

11.237

12.044

6.526

10.020

HR

15.836

5.770

10.275

10.940

6.428

9.050

8.520

8.161

10.195

10.437

8.662

10.492

7.657

8.166

9.340

KA

17.838

9.990

12.604

18.101

10.229

13.194

10.440

9.971

10.982

11.987

9.031

10.080

12.440

10.486

10.616

KE

11.389

8.573

10.647

12.477

8.428

10.078

8.433

5.485

7.641

8.322

5.562

6.709

12.824

5.181

9.151

MP

6.821

9.928

9.954

15.549

12.483

13.862

11.787

9.132

11.165

8.781

3.233

4.025

15.357

8.593

11.249

MH

14.115

5.845

9.348

13.389

9.622

10.867

13.222

9.083

11.397

12.236

7.693

9.231

12.643

5.626

8.463

OR

18.033

7.880

9.367

9.464

14.268

16.689

9.947

7.450

9.885

8.335

10.676

9.274

16.555

5.625

9.351

PU

12.838

7.546

11.462

13.388

7.408

9.549

12.820

2.523

8.184

11.824

8.347

10.166

11.532

7.675

9.997

RJ

12.709

4.719

9.582

17.370

9.420

11.601

8.811

8.306

9.646

12.730

6.972

9.457

12.072

9.882

11.598

TN

11.028

7.355

8.869

10.108

8.898

9.004

10.771

8.737

9.293

13.137

10.279

10.802

9.652

15.903

12.984

UP

10.509

6.193

8.495

12.853

6.271

8.493

13.617

9.884

12.120

11.535

10.826

11.100

14.330

4.773

9.709

WB

12.212

8.128

9.795

13.065

10.993

11.562

10.795

7.363

9.187

9.655

9.929

10.159

8.957

8.763

9.514

Source: Author’s own calculations using ASI unit level data

Table 5.5: Growth of Wages Per Worker in Industries across states (cont.)

NIC-87

35

37

38

Year/

States

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

Pre-Reform

Post- Reform

Total

AP

9.948

9.948

11.884

11.256

7.868

9.198

8.241

2.876

7.297

AS

9.705

8.731

11.533

11.528

1.439

5.709

5.569

15.403

5.592

BI

13.917

-5.105

4.349

9.816

3.521

6.665

27.105

-5.553

5.954

DL

11.619

7.019

9.974

10.664

4.647

11.601

12.415

7.401

10.310

GU

11.954

8.897

10.336

9.362

8.744

8.185

12.117

13.644

13.420

HR

11.849

8.519

11.157

12.336

7.835

11.242

10.446

5.713

9.084

KA

12.356

8.011

9.945

11.654

6.831

9.446

11.827

7.382

9.385

KE

13.309

5.660

8.943

12.139

11.572

12.810

11.457

7.506

9.610

MP

10.728

13.099

12.305

11.833

9.390

10.928

14.513

14.250

13.464

MH

15.669

6.071

10.140

15.206

5.675

10.409

12.409

9.474

10.143

OR

9.997

7.444

9.193

8.838

1.380

6.402

8.371

-22.695

-5.671

PU

11.667

9.054

11.260

11.341

7.403

10.216

10.648

6.249

8.861

RJ

8.092

6.814

8.445

11.745

5.750

8.085

14.483

9.320

10.872

TN

9.651

8.182

9.250

12.149

8.259

9.872

13.178

5.409

9.568

UP

14.484

10.452

10.865

11.467

8.396

9.926

13.680

7.502

10.528

WB

10.464

9.001

9.922

12.097

7.417

9.246

11.336

6.152

7.381

Source: Author’s own calculations using ASI unit level data