The Decline of labour: Myth of
‘Rigidity’ in India’s Labour Market
SATYAKI ROY
ISID, New Delhi
National Seminar on “ Globalisation, Labour market and
Employment Relations in India”
9-10 July, 2012
Mumbai
Flexibilisation Debate
• Flexibility: lowering cost of hire and fire: separation
benefits are potential hiring costs
• Net result: lower employment rates during upswing and
higher rates during recession
• Types of flexibility (S,2002): numerical: increased external
worker; functional: job structure, work tasks; wage
flexibility: fixed to flexible, monetisation
• Globalisation: addition of labour supply without
proportional addition in capital: bargaining strength
• Globalisation: Logics of competition; logic of
employment-protection; logic of industrial peace:
hegemony of capital by dismantling legal rights: Share of
IW within FS: 42 (99/00); 46.6 (04/05); 51.1 (09/10)
The Macro-perspective
• Lower real wage induce profit-max firms to produce more through
greater emp till MPL equals real wage; abolition of institutional
rigidities: rising emp without accelerating inflation
• Keynes’s intervention in case of temporary departure from Say’s
world of full employment
• The assumptions of the marketist approach: a) reduction in NW
keeps demand unchanged; b) MPC=1 implying no gap between
increment of income and that of consumption; c) DL in response to
NW is not inelastic
• Wage restraint would depress both unit cost and Consumption
demand, alternative I or Ex (B&M,1990). Inflation as an implicit
shift.
• More the share of profit incomes the less responsive would be CD
wrt income; Change in the composition of output: higher income
elasticities of demand and lesser employment elasticity
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
00-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Share of compensation to employees and operating surplus
(all sectors, NAS)
60
50
40
30
COMPE
20
OS
MI
10
0
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
00-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Share of Compensation to employees by industry categories (NAS)
140
120
AFLF
100
M&Q
80
MANU
EGW
60
CONST
40
THR
TSC
20
FIRB
0
CSPS
ALL
-20
-40
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
00-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Share of operating surplus by industry categories (NAS)
80
60
AFLF
M&Q
40
MANU
EGW
20
CONST
THR
0
TSC
FIRB
CSPS
ALL
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
00-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Share of Compensation to employees in manufacturing (NAS)
60
50
40
30
MANUR
20
MANUU
10
0
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
00-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Share of Compensation to employees in services (NAS)
140
120
100
TRD
H&R
80
RLWS
60
TBOM
STRG
40
COMM
BNK&I
20
REDBS
0
OTHS
Highlights (NAS)
• Decline in CE: 37.4 to 34.1 (D-3.1pp); Decline MI: 51.4 to 45.4
(D-6pp)and rise in the share of OS: 10.4 to 18.7 (D-8.3);
sharper rise since 1993
• Sharp fall in CE: TSC: 80.3 (80/81) to 37.3 (09/10); M &Q: 75.3
(80/81) to 37.4 (09/10)
• Sharp rise in OS: M&Q: 21.1 (80/81) to 34.4 (99/00); FIRB:
13.5 (80/81) to 26.4 (09/10)
• Share of CE increased: EGW, THR, CSPS
• Within Manu CE declined in registered and marginal rise in UR
• Within services CE declined sharply in railways,
communications and banking and insurance and transport by
other means ; increased relatively more in hotel and
restaurants and other services.
Salaries & wages to income ratio by industry groups (Prs)
30
25
20
CNST-RE
ELEC
15
FINSV
MANU
10
5
0
MING
SVCS
Profit to income ratio by industry groups (Prs)
25
20
15
CNST-RE
ELEC
10
FINSV
MANU
5
MING
SVCS
-5
-10
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
Factor shares in GVA (all ASI)
0.4
0.35
0.3
0.25
0.2
WW/GVA
0.15
PR/GVA
RP/GVA
0.1
IP/GVA
0.05
0
Share of material, fuel and labour cost in gross output (ASI)
0.7
0.6
0.5
0.4
MC/VGO
0.3
0.2
0.1
0
FC/VGO
WW/GVO
GVA per worker at constant prices (ASI)
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
VAPW
-5
-10
-15
-20
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
Growth of real wages in ASI
GRW
20
15
10
5
0
GRW
Linear (GRW)
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
Average wage and labour productivity
4.5
4
3.5
3
2.5
2
Avg. NW
1.5
NGV/W
1
0.5
0
GVA to fixed capital ratio ASI
7
6
5
4
Series1
3
2
1
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
Capital intensity (Productive capital (d) to number of workers) ASI
PC(d)/NW
12
10
8
6
4
PC(d)/NW
2
0
-10
-20
-30
-40
-50
-60
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
Growth in capital intensity and labour productivity
30
20
10
0
GLP
Gcap In
Unit labour cost using GVA at constant prices ASI
1800
1600
1400
1200
1000
800
600
400
200
0
Series1
Highlights (ASI)
• Share of Profit as % of GVA: 19.3 (79/80) to 37.3 (03/04)
• Share of Wages as % of GVA: 27.9 to 12.3
• Share of rent was relatively high (>2%) in 95/96-01/02 but
came down to 1.7
• Share of interest increased since 79/80 reached a peak 28.4
(91/92) and then declined
• Share of wages declined consistently, may be the slope was
higher since late 1980s
• Share of profit outstripped the share of wages only when the
share of interest declined
Highlights (ASI)
• In the manufacturing material cost as % of GVO hovered
around 60% throughout
• Fuel cost declined since mid-80s to 7.1% in 03/04
• Labour cost in output was 8% (73/74) came down to 2.4%
(03/04)
• Real wages increased over the years but growth in RW show a
declining trend
• The gap between average wage and labour productivity
increased sharply
• Capital intensity increased faster than the growth of LP.
• Unit labour cost declined by 58%: labour lost more than half
for producing the same output
Some concluding remarks
• Assumed symmetry of inputs: price is a function of ULC
(NW/LP) and UCC (Pr/CP)
• D-S framework doesn’t say that wage reflects productivity:
rise in productivity and its impact on supply of labour.
• Wage-productivity (A,1982): determination of ‘fair wage’:
social norm: perceived value, notion of ‘gift exchange’: when
actual wage < fair wage: effort < normal effort.
• Workers attain firm specific skills: economic rent through rise
in MVPL: demanding higher share does not reduce profit or
employment
• Flexibilisation is a political project: shifting responsibility of
maintaining RAL from individual capital to the state: noncapital shares the responsibility as well.