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Decline in Rural employment & Lower Farm incomes and Agri workers’ wages - Synopsis by:
K. Ramasubbareddy
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Summary: |
| An analysis of trends in earning and employment from 1983 to 2005, made by Sandip Sarkar, Balwant Singh Mehta. (EPW, september 11, 2010, Income Inequality in India: Pre- and Post-Reform Periods), and NSSO 64th round survey of 2008 bring out facts about worsening employment situation in rural India and low incomes for farmers and lowwages for agri workers: |
Employment situation worsened during 2005-08
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*Between 2005 and 2008, while employment generation decelerated considerably in urban areas, increasing by only 4.4 million it actually declined by two million in rural areas.
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Employment in rural areas declined from 94 billion person days in 2004-05 to 93 billion person days in 2007-08.
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The 2007-08 estimates show almost no non-farm employment diversification compared to 2004-05.
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* Economic growth between 2004-05 and 2007-08 has failed to create enough jobs in the economy.
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While aggregate employment in the primary sector declined in absolute terms, the growth rate of employment in the secondary sector and services was only 1% per annum.
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| *The intersectoral productivity gap widened, the share of wages in value added has continued to show a decline with that of profits rising. |
Wage differential across different segments has increased clearly indicated rural-urban disparities
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*The overall income inequality (gini coefficient) demonstrated a continuous increase over the period with a sharp increase during the post-reform period,
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* Major differences in wage and income based on:
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- Residence: rural work force gets lesser wages than urban work force,
The rural and urban inequality had increased with rising inequalities in the upper income group.
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In 2004-05 the wage level of non-agricultural workers was around two times higher than the wage for regular agricultural workers.
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In urban areas, the wage gap between the secondary and tertiary (services) sectors was widening probably reflecting the service oriented pattern of economic growth.
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Even with the same level of education, the rural-urban divide remains because rural workers face various other institutional barriers in accessing the high paid jobs in urban areas. This is reflected in the lower wages in rural areas compared to those in urban areas at every level of education
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- Educational level: workers with higher education get more wages than those with lesser education,
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The wage rate of the highest educated, graduate and above, had been consistently over three times to that of primary and below during the whole period.
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The share of workers with education level graduate and above in education component had gone up from 52% in 1983 to 72% in 1993-94 and further to 82% in 2004-05.
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-Employment status: regular employees get more wages than casual labour,
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*The workers’ earnings indicated that there was a substantial growth of earnings of workers receiving higher wages.
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*Manufacturing has played a minor role in absorbing the labour which had moved away from agriculture. It was the tertiary sector and construction which have provided the bulk of new opportunities for the growing labour force.
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| * The average labour read share of tertiary sector was high largely because of financial services segment even though employing a miniscule 1.8% of the work force, has a whopping 18 times more share than agri sector employing the majority work force at 55% . |
*As a whole, the better-off sections of workers have gained at the cost of the more vulnerable sections.
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*Therefore, the policy focus should be not only on improving educational levels, but also in creating more employment opportunities with quality and better paying stable jobs for the labour force.
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| A1.Causes for disparities in earnings |
| *A major reason for the difference is that regular wage workers have much greater variation in human attributes, particularly education. |
*The growth of regular wage in the pre- and post-reform periods in rural show a moderate increase in growth of wage up to 50 percentile and a small decline thereafter.
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*In urban areas, during the post-reform period there was a negative growth up to 50 percentile and then a sharp increase up to the top percentile. This was explained as a sharp rise of wages of skilled workers relative to the unskilled ones.
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*Among the regular workers there was a shift to the right in the earning distribution for both rural and urban areas in the post reform period, which was the largest for tertiary sector (services).
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| *The sectoral composition shows that the tertiary sector and construction had provided the bulk of new opportunities for the growing labour force. |
| The enhanced role of construction is a feature of the post-reform growth process. However, labour productivity (share) in this sector had declined during the post-reform period and more jobs were being created in the lower quintiles. |
| *However, the decomposition of factors revealed enormous differences in explaining the levels of earning inequality among wage earners. In urban and rural India, two major factors, intensity of work (total number of days) and educational levels were the most dominant factors contributing to inequality and the contribution of other factors like employment status, industry groups did not substantially affect inequality. |
The former two factors were also the most important factors for explaining the increase in inequality in the post-reform period. Within the education factor, the graduates and above sub-component was the highest contributor accounting for 82% contribution in 2004-05.
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2.Conclusion
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As a whole, the better-off sections of workers have gained at the cost of the more vulnerable sections.
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This requires urgent policy attention if the interests of the poor, less educated and semi-skilled workforce are to be safeguarded. In the era of economic reform, the labour market dualism had sharpened and there is a need to provide better options to workers in the rural and urban informal sector to acquire education and skills.
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| The level of education, number of working days and employment status are to a large extent interrelated. There is enough evidence to show that a lack of opportunities of stable regular employment forced workers to take refuge in casual and self-employment work, which was earlier considered to be a transitory phenomenon, but is no longer so. |
| 3.Way forward |
| Therefore, the policy focus should be not only on improving educational levels, but also in creating more employment opportunities with quality and better paying stable jobs for the labour force. |
| B.Analysis |
| 1. Rural/Urban Income Inequality Trends in India |
| Sector |
Gini |
GE(0) |
GE(1) |
GE(2) |
| Rural |
|
|
|
|
| 1983 |
0.319 |
0.169 |
0.194 |
0.324 |
| 1993-94 |
0.298 |
0.148 |
0.184 |
0.454 |
| 2004-05 |
0.320 |
0.172 |
0.223 |
0.531 |
| Urban |
|
|
|
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| 1983 |
0.367 |
0.223 |
0.249 |
0.422 |
| 1993-94 |
0.357 |
0.209 |
0.239 |
0.417 |
| 2004-05 |
0.389 |
0.250 |
0.290 |
0.534 |
| Total |
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|
|
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| 1983 |
0.337 |
0.188 |
0.217 |
0.370 |
| 1993-94 |
0.347 |
0.197 |
0.240 |
0.504 |
| 2004-05 |
0.376 |
0.233 |
0.292 |
0.625 |
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| GE classes of measurements are Generalised Entropy measures. GE(0) gives more weights to lower tail of the income distribution, GE(1) gives equal weights and GE(2) gives more weights to the upper tail of income distribution |
| The above table presents the inequality trends in rural and urban
India separately over the last two decades. In the pre-reform decade, the inequality as shown by Gini index and different generalised entropy measures showed decline in inequality except for GE(2) only in rural areas. |
| In the post-reform period (1993-94 to 2004-05), the inequality
in both rural and urban areas had increased substantially, thus
making inequality in 2004-05 higher than that of 1983 in all different
measures of inequality. |
| A substantial rise in inequality has been noticed particularly in GE(2). One can argue that opening up of the economy to global trade is likely to show a rise in this measures of inequality, i e, raising inequality in the income of the group of the households’ way above the poverty line. What is disturbing is the fact that inequality measures like GE(0) that gives more weights to lower part of the distribution showed a substantial rise in the post-reform period and it was more pronounced in the urban areas. |
| It indicates that the trickle-down effect of growth on the decline of poverty might have weakened considerably. |
| However, the overall (rural and urban combined) income inequality
showed a continuous increase in all measures over the years.
The increase in inequality was sharper for Gini, GE(0) and GE(1) in
the post-reform period. Only in the case of GE(2), the increase had
been marginally faster in pre-reform period. |
| Another interesting point is that that GE(2) figures for all areas were larger that the rural and urban counterpart for the years 1993-94 and 2004-05. It indicates that the rural-urban differences in inequality in upper income groups must be rising. |
| 2.Income Inequalities- Causative factors |
| The non-agriculture wage rate has been historically higher than the agricultural wage rate in India. Even in 2004-05 the wage level of non-agricultural workers was around two times higher than the wage for regular agricultural workers. |
| The growth rate of wages rate of tertiary sector regular workers had been substantially higher than the secondary sector workers both in pre- and post-reform period. Reverse was the scenario for casual workers. This reflects the existence of strong dualism in tertiary sector. |
| For regular workers, the widening wage disparity between secondary and tertiary sector is probably a reflection of the service-oriented nature of economic growth. |
The educational achievements of workers play an important role in determining earnings and wages in segmented labour markets.
Accordingly, workers with higher educational qualificatios are likely to get higher wages as compared to those who are less educated. |
| Even with the same level of education, the rural-urban divide remains because rural workers face various other institutional barriers in accessing the high paid jobs in urban areas. This is reflected in the lower wages in rural areas compared to those in urban areas at every level of education. |
| Among regular workers, the wage rate of the highest educated, graduate and above, had been consistently over three times to that of primary and below during the whole period. In the post-reform period for urban areas, the growth of wage rate turned positive only after middle school education level and went up substantially to reach high level at graduate and above education level showing a rise in inequality among these sets of workers. |
| 3. Sectoral Income and Earnings Inequality |
| India is witnessing a widening of income inequality along with acceleration in the growth of GDP. |
| Distribution of Employment across Sectors over the Years (%) |
| Sector |
1951 |
1983 |
1983 |
1993-94 |
1993-94 |
1994-05 |
20004-05 |
| Agriculture |
70%(55%) |
65% |
(36.4%) |
61% |
(30.0%) |
55% |
(20.2%) |
Industry*
a.Construction |
(15%) |
15%
2.7 |
(24.2%) |
16%
3.7 |
(25.2%) |
19%
6.4 |
(26.2%) |
Services
a.Trade…
b.Transport…
c.Financial… |
(30%) |
20%
6.9
3.0
0.7 |
(39.4%) |
23%
8.0
3.3
1.1 |
(44.8%) |
25.9%
11.2
4.5
1.8 |
(53.6%) |
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* Industry includes construction, Source: EPW, VXLV/37, 11092010, Computed from Unit Level Data of Various NSS Rounds and CSO NAS, Figures in brackets show Gross Domestic Product at constant (1999-00) prices. |
| The acceleration in per capita GDP growth in the post-reform decade had been associated with a marked increase in the reallocation of labour outside agriculture. |
| A striking point about the accelerated reallocation of labour away from agriculture had been that manufacturing has played a minor role in absorbing the labour which had moved away from agriculture by a mere 1 percentage point. |
| It was the tertiary sector and construction which have provided the bulk of new opportunities for the growing labour force. In the pre-reform decade, the tertiary sector increased its share of the labour force by 3 percentage points and construction by 1 percentage point. In the post-reform years, the respective percentage points have been 2.9 and 2.7. |
| The average labour productivity (share) of tertiary sector was high
largely because of financial services segment. The trade, etc, sector that absorbed substantial part of incremental employment, the productivity difference with manufacturing was less. But it was the construction sector that had started absorbing labour at a higher rate in the post reform period, which showed a decline in the absolute labour productivity. |
| The construction sector that had been creating substantial employment in the post-reform period shows that relatively more jobs were being created in the lower quintiles in rural areas. |
| Virtually three-fourth and one-fourth of net new jobs that had been created in this sector were in casual and self-employed categories, respectively with regular worker category contributing virtually nothing. |
| 4.Decomposition Analysis of Earning Inequality of Wage Earners |
| The differential in earnings is contributed by various factors like educational level, employment status, settlement (rural or urban), industry groups, gender, intensity of work, etc. We need to know contributions of each these characteristics to earning inequality. |
| Contribution to Earnings Inequality(%) |
| Characteristics |
1983 |
1993-94 |
2004-05 |
| 1Education |
34 |
33 |
34 |
| 2.Total days of work |
24 |
20 |
22 |
| 3.Employment Status |
11 |
18 |
13 |
| 4.Industry |
10 |
11 |
11 |
| 5. Gender |
10 |
08 |
09 |
| 6. Others |
11 |
10 |
11 |
| Total |
100 |
100 |
100 |
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| Decomposition of factors (excluding residuals) that contribute to earnings disparity of all wage earners is given in the table above. The two major factors that contributed to differences in earnings were educational level and intensity of work (total days of work). The regular workers get paid for all days in week whether they work or on leave but casual workers are paid only for the days they actually work. |
| The level of education emerged as the most dominant factor
contributing to the level of inequality in earnings of wage
workers. The employment status (regular or casual) was the third
most important factor. It showed that even after controlling days
of work, daily wage differential between regular and casual was
substantial |
| The contribution of inter-industry disparity and gender differences in earning inequality were almost of equal importance. The education factor is the combined effect of all years of schooling. When we differentiated with years of schooling, it is observed that the share of workers with education level graduate and above in education component had gone up from 52% in 1983 to 72% in 1993-94 and further to 82% in 2004-05. |
| It shows that even after controlling for several factors of location, sex, status of work, industry and age, the relative earnings of workers with graduate and above had registered a huge increase in the last two decades of growth. It was also observed that the relative education premium of workers only with secondary education had declined substantially in the pre-reform period. |
| 5.Labour productivity (share) by Broad Sector(1983 to 2004-05) and share in Employment |
| Sector |
1983 |
1983 |
1993- |
94 |
2004- |
05 |
| |
Emp % |
Labor share Agri 100 |
Emp % |
Labor share Agri 100 |
Emp % |
Labor share Agri100 |
| Agri |
65% |
100 |
61% |
100 |
55% |
100 |
| Mfg |
11.3% |
221 |
11% |
288 |
12.1% |
356 |
| Construction |
2.7% |
334 |
3.7% |
279 |
6.4% |
201 |
| Services |
20.0% |
309 |
23.0% |
367 |
25.9% |
422 |
| a.Trade… |
6.9% |
295 |
8.0% |
313 |
11.2% |
361 |
| b. Transport. |
3.0% |
332 |
3.3% |
386 |
4.5% |
416 |
| c.Financial… |
0.7% |
1,790 |
1.1% |
2,057 |
1.8% |
1,818 |
|
| Emp%=Share in employment as percentage. Labor share= Reletive labor share with Agri share=100 |
| A striking point about the accelerated reallocation of labour
away from agriculture had been that manufacturing has played
a minor role in absorbing the labour which had moved away
from agriculture. This has been true both in the years before
1993-94 and the decade after it. |
| It was the tertiary sector and construction which have provided the bulk of new opportunities for the growing labour force. In the pre-reform decade, the tertiary sector increased its share of the labour force by 3 percentage points and construction by 1 percentage point. In the
post-reform years, the respective percentage points have been
2.9 and 2.7, while manufacturing managed to contribute a mere
1 percentage point. |
| The average labour read share of tertiary sector was high largely because of financial services segment even though employing a miniscule 1.8% of the work force, has a whopping 18 times more share than agri sector employing the majority work force at 55% . |
| It was the construction sector that had started absorbing labour at a higher rate in the post reform period, which showed a decline in the absolute labour productivity. |
| The construction sector that had been creating substantial
employment in the post-reform period shows that relatively more
jobs were being created in the lower quintiles. |
| Virtually three-fourth and one-fourth of net new jobs that had
been created in this sector were in casual and self-employed
categories. |
| Source: Income Inequality in India:Pre- and Post-Reform Periods, Sandip Sarkar, Balwant Singh Mehta EPW, september 11, 2010 vol xlv no 37 |
NOTE: Jobless Growth- Editorial, EPW september 25, 2010
The years of rapid economic growth have been years of jobless growth; does the government care? |
| The 2004-05 NSS survey had suggested that 12 million jobs had been created every year or a growth of 2.85% a year between 1999-2000 and 2004-05, which even exceeded the growth rate of the population. |
| However, the results of the 64th round show that the total employment created, according to the usual status, between 2005 and 2008 was only 2.4 million, which was just 0.8 million per year or a mere fraction of the 12 million created per year between 1999-2000 and 2004-05. The total number of workers increased from 457.9 million in 2004-05 to 460.2 million in 2007-08, a growth rate of just 0.17% per year as against the 2.85% per year growth rate achieved between 1999-2000 and 2004-05. This is the lowest rate of employment generation in the last three decades, even lower than the previous spell of jobless growth of 1993-2000 when employment increased by less than 1% per year. |
| A detailed examination of the trends indicates that while employment generation decelerated considerably in urban areas, increasing by only 4.4 million between 2005 and 2008, it actually declined by two million in rural areas. But in both rural and urban areas, the decline was largely in the female workforce. Overall, employment of males increased by 5.2 million per year but declined by 4.4 million per year for females. |
| Sectoral trends also suggest that the trend of non-farm diversification in employment in rural areas, which was also the focus of the Eleventh Plan, has not yielded any results with the 2007-08 estimates showing almost no non-farm employment diversification compared to 2004-05. |
| These trends are also confirmed by the daily status measure of employment – which better reflects the extent of employment and unemployment from day to day – that show that the person days of employment in rural areas declined from 93.8 billion person days in 2004-05 to 92.9 billion person days in 2007-08. This decline in person days of employment would have been far greater had it not been for the National Rural Employment Guarantee Scheme (NREGS).The employment created by public works (including the NREGS) increased from 221 million person days in 2004- 05 to 939 million person days in 2007-08. |
| The growth in wage rates for casual workers which decelerated to less than 1% per annum during 1999-2005 shows an increase of more than 4% per annum during 2004-07. |
| Even discounting the income effect and the subsequent decline in the size of the female workforce, the aggregate picture does confirm apprehensions that economic growth between 2004-05 and 2007-08 has failed to create enough jobs in the economy. |
| Not only has male employment growth remained sluggish, growing at 1.66% per annum, marginally better than during the previous episode of jobless growth in the 1990s, it shows almost no non-farm diversification. The other worrying signal is the slow pace of employment creation in the sectors that are driving GDP growth. |
| While aggregate employment in the primary sector declined in absolute terms, the growth rate of employment in the secondary sector and services was only 1% per annum. |
| The NSS numbers are nowhere close to the claims of employment creation made in the Mid-Term Appraisal of the Eleventh Plan of the Planning Commission. These also betray the tall claims made by the Economic Advisory Council of the Prime Minister which said a few years ago that a growth rate of 9-10% would be sufficient to absorb the annual addition of around 12 million to the labour force purely as a result of the demographic dividend. |
| Available evidence also points to an increasing inequality in incomes and opportunities. Not only has the intersectoral productivity gap widened, the share of wages in value added has continued to show a decline with that of profits rising. |
| The 64th round of the NSS also suggests a widening of the wage gap between the skilled and unskilled labour force at a faster rate than before. Clearly, the challenge of decent employment creation will prove to be a stumbling block in realising any measure of inclusive growth. Source:NSSO 64th Round 2008/ EPW september 25, 2010 |
| Krsr/Publication/300910 |
