There are jobs but no salaries! This is what employees need to do for better wages

India is currently not facing job problem but shockingly low income as limited productivity has been witnessed across major sectors, revealed a SBI Ecowrap research note titled - ‘Be the Bank of Choice for a Transforming India’. Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI said, “Low productivity is one of the root causes of the “working poor” phenomenon: people who work long hours, often in the informal economy or in subsistence agriculture, do not earn enough to feed their families. Raising Labour productivity is therefore of critical importance for better wages.”

Data compiled and SBI estimates showed that in India there has been a growth in the labour productivity as a ratio and in terms of growth as well, however the output has not complemented equitably. The manufacturing sector output, which holds the key to employment is lower than the average overall CAGR, while services records a higher than average growth. 

According to RBI KLEMS data (this include measures of economic growth, employment creation, capital formation and productivity at the industry level from 1980-81 onwards), apart from post and telecommunications, no remarkable gains have been achieved in sectors such as Agriculture, Textiles, Transport Services and so on till 2015-16.

In fact, SBI says, “Productivity has seen a decline in crucial sectors, including Education and Health. Further, even if productivity gains have been achieved in some sectors, that is due to use of efficient technology and machinery and relatively lower concentration of labour.”

Compiling KLEMS data, SBI  estimated the productivity of various sectors during FY17-FY19.

Result shows that,  though the productivity ratio has registered improvement, the overall productivity growth remains relatively stagnant (9.4% to 9.9%) in the last six years, barring FY15.

On sector-wise, SBI highlighted that, however service industry shows better productivity growth. Contrary to market perception, it is declining productivity growth in Agriculture which has led to overall stagnant growth. This is consonant with the stagnation in productivity growth in the advanced economies, which is a puzzle. 

Interestingly, manufacturing productivity growth that had declined precipitously in FY17 has picked up pace now, but is still much lower than FY16 levels when it peaked. Productivity in construction sector had turned negative in FY16 and FY17, added SBI. 

Productivity growth in agriculture & allied sector, has decelerated to 9.9% in FY18 from 15.1% in FY17. So far in FY19, the growth rate is even lower at 6%. Meanwhile, service sector has been muted in past three fiscal. Between FY18 - 19, service sector has been  slightly over 10%, compared to 9.4% in FY17. 

Overall, research shows, productivity has remained muted at 9.8% each in FY17 and FY18. Even in FY19, it stood at 9.9%. 

Thereby, Ghosh says, “India lags significantly in terms of labour productivity. Even in the next decade i.e., by 2021 it is estimated that India's output per worker will rise to just $6,414 compared to China's $16,698. The gap, therefore needs to be bridged through policy changes. Persistent low productivity encourages over-borrowing by corporations and households; private debt crises, in turn, represent a big risk to economies and fiscal systems.”

SBI believes  the current cacophony of jobless growth is not correct, as India is witnessing an era of declining labour productivity growth across sectors thus limiting the gain in wages! In fact, we are now in an era of low wage growth. This also holds important lessons for monetary policy setting as the familiar nexus if any, between wages and prices then breaks down!