No link between wages and economic performance: ILO report

Amid the spate of salary cuts and layoffs as the Covid-19 pandemic continues to rage, Rajesh Pande, a professional from Bihar, thinks that he should look for a job in India’s “developed” States, which have better economic indicators.

He thinks that States that have done well in economic development in the past might recover faster from the economic crisis and that he would get a better salary in such States.

However, an analysis of data to verify if there is an association between economic development and wages across States reveals a different picture.

The India Wage Report published by the International Labour Organization (ILO) in 2018 correlated State per capita income with the wages of regular workers in urban and rural areas.

For regular urban wages, only Haryana stands out as a high average wage-paying State with a high per capita income.

The next best wage-performing States — Assam, Jharkhand, and the erstwhile Jammu and Kashmir — are considered lower in economic development compared with States such as Tamil Nadu, Punjab, Himachal Pradesh and Gujarat, but the average wage levels are lower for regular urban workers.

Similar in rural areas

Regular rural wages across States follow a similar pattern. Bihar, Jharkhand, and Jammu and Kashmir, for example, have much higher average wages compared to economically better off States such as Punjab, Tamil Nadu, Gujarat and Karnataka.

“It appears that there is little association between the wages of regular workers (urban or rural) and the economic performance of a State.

“This is somewhat puzzling and requires further investigation,” the ILO report mentions.

The report highlights that States at a low level of economic development also tend to pay low wages, though there are some variations even among them.

“Kerala stands out, with a high level of economic development and high wages for casual workers in both rural and urban areas, probably also a reflection of institutional factors, which, surprisingly, one does not observe for regular wages,” the report adds.

Institutional factors

The findings show a considerable variation in wage levels and the growth rate of both regular/salaried and casual workers across the States.

This is not merely due to differences in economic performance, but also due to institutional factors such as minimum wage policies and human development levels. It also shows that, despite low growth, some States have witnessed growth in wages.

The report adds that low pay remains pervasive and wage inequality is still very high.

Only a limited number of regular/salaried workers — mostly in urban areas — and highly skilled professionals earn substantially higher average wages. Daily wages in urban areas remain more than twice as high as wages in rural areas.