• UGI USER
  • Oct 20, 2023
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Workers Await Benefits of Recovery

Relevance

  • GS Paper 3 Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
  • Tags: #Wages #IndianEconomy #KShapedRecovery #MintEditorial #UPSCMains2024

Why in the News?

The Indian economy shows signs of recovery, with positive GDP figures and government spending. However, a closer look reveals persistent issues like declining worker earnings and unequal growth.

How is economy doing?

  • The overall assessment of the economy varies depending on how you look at it.
  • When we look at the big picture, things seem optimistic.
  • Despite the pandemic disruptions and the previous slowdown, the economy grew by 7.8% in the April-June quarter.
  • Projections indicate that the annual growth for this year could be around 6-6.5%, which is a positive sign.
  • However, it’s still lower than the growth rates from a decade ago, even though it’s within a more “normal” range for India’s economy.

Real Wage Growth for Casual Workers

Wages on the Rise

  • Data from the labor bureau provides insights into the wages of casual workers, particularly in rural areas.
  • From April to June, nominal wages in agriculture increased by 6%, while non-agricultural wages saw a rise of 7.3%.
  • These figures suggest a positive trend in real wage growth, with rates of 6% for agriculture and 1.4% for non-agricultural work, marking the highest quarterly rates in five years.
  • Despite this progress, it’s too early to determine whether these increases are a result of inflationary pressures or just a rebound from last year’s sharp wage declines.
  • However, even with this growth, real earnings for casual rural workers have not yet returned to pre-pandemic levels.

Stagnation in Agriculture

  • The real wages of casual wage workers in agriculture show minimal growth, at just 1% per year compared to 2019 wages.

Non-agricultural Sector Struggles

  • In the non-agricultural sector, wages are even lower than 2019 levels, reflecting a decline of 1.1% from the previous year.

Regular Workers Still Struggling

Comparing the PLFS Data

  • Regular workers, although enjoying better job security and working conditions than casual workers, are not getting along much better in terms of real earnings.
  • Data from the Periodic Labour Force Survey (PLFS) for 2022-23 reveals that real earnings for regular workers have not yet reached pre-pandemic levels.

Real Earnings Trends

  • For the April-June quarter, real monthly earnings for regular workers have seen a 0.5% annual decline when compared to their 2019 earnings.
  • This decline also persists into the July-September quarter of the previous year, with real earnings falling by 1.6% annually compared to 2019 levels.
  • Comparing earnings to 2017-18, the year when the PLFS series began, real earnings for regular workers in every quarter of 2022-23 are lower.
  • On average, there’s an annual decline of 1.8%.
  • In contrast, casual workers have seen a higher rate of wage growth, with an average increase of 4% per annum.

Economic Structure and Workforce

  • Beyond wages, various employment indicators signal a shift in the composition of the workforce and a regression in the structural transformation process.
  • This ideally implies moving away from agriculture and towards manufacturing and services.

Earnings across the Workforce

  • In India, almost half of all workers are either regular or casual workers.
  • Looking at the data for casual workers in particular, it reveals that the growth in wages for all wage workers is only around 2% per year.
  • Regular workers play a significant role in generating the extra spending in the economy.
  • Their incomes contribute to demand for various products and services.
  • When regular workers’ earnings decline, it can lead to problems in managing overall demand in the economy, especially if exports and rural spending are not picking up.

Two Economic Views

  • There are two perspectives on India’s economy. One suggests recovery and decent growth, while the other highlights challenges in worker incomes.
  • K-Shaped Recovery : The economy might be improving, but it seems to benefit some more than others, leading to inequality. The better-off do well, while many struggle.

For long-term economic health, worker incomes must rise. Government support is helping, but it’s not enough. A wider group of people needs to have more money to spend and stimulate the economy. High prices are making it harder for many people to afford what they need. Protecting workers’ incomes might be crucial for the economy.

Types of Economic Recoveries

V-Shaped Recovery

  • This is the most ideal type. It implies a quick rebound from a recession or crisis, characterized by a sharp decline and an equally rapid recovery.
  • Example: After the 2001 recession in the U.S., the economy swiftly rebounded due to increased consumer spending and a technology boom.

U-Shaped Recovery

  • Economy experiences a more gradual decline followed by a slow recovery.
  • Example: The global financial crisis of 2008 led to a U-shaped recovery as the economy took a few years to regain strength.

W-Shaped (Double-Dip) Recovery

  • This recovery shape includes a temporary rebound followed by a second downturn before a sustained recovery.
  • Example: The COVID-19 pandemic initially triggered a sharp economic downturn, followed by a partial recovery, but uncertainties and setbacks could lead to a double-dip scenario.

L-Shaped (Long-Term) Recovery

  • Economy faces a severe decline and struggles to recover quickly, resulting in a prolonged period of low growth.
  • Example: Japan’s “Lost Decade” during the 1990s saw persistently low growth after the bursting of a financial bubble.

K-Shaped Recovery

  • This type represents diverging paths for different segments of the economy.
  • While some sectors or individuals recover quickly, others face prolonged economic challenges.
  • Example: During the COVID-19 crisis, technology and e-commerce companies thrived (upper arm of the ‘K’), while traditional retailers and hospitality businesses suffered (lower arm of the ‘K’).

 

Source: Livemint

Mains Question

Examine the factors contributing to the stagnation in real wages for both casual and regular workers in India. How might this affect the country’s economic recovery?