Need jobs, not wage hike PDF Print E-mail
Wednesday, 20 February 2019 07:09
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Sharp hike in minimum wage will lead to reduction in staffing


Even if you choose not to pay attention to the leaked report of the NSSO, which shows a surge in unemployment rates in 2017-18 rising up to 15-20% levels among the youth, the Labour Bureau’s annual employment-unemployment survey shows pretty similar results for 2015-16. While unemployment rates were 3.7% across the country, they were as high as 10.3% for those in the 15-29 age group and, within this, as high as 30% for graduates; essentially, the Labour Bureau data showed that unemployment rates rose as people got more educated. Such high levels of unemployment are unfortunate at any point in time but, in an election year, can spell disaster for those seeking re-election.

It is not clear how accurate even the labour bureau data is, though some other evidence suggests it may not be totally inaccurate either. Exports growth, particularly in labour-intensive sectors like ready-made garments, creates a lot of jobs, but this has been quite poor over the last few years—while overall exports contracted from $314 bn in 2013-14 to $304 bn in 2017-18, ready-made garment exports rose by under 12% in the four-year period. Construction of housing is another employment generator, but a combination of demonetisation, RERA and the overall war against black money has hit its growth.

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In such a situation, why the government would want to more than double the minimum wage, from `4,576 per month today to a suggested `9,750 is not clear; a report by the VV Giri National Labour Institute Fellow, Anoop Satpathy, made public by the labour ministry, suggests this. Over and above this, it recommends an additional house rent of `1,430 per month for urban workers. The proposal, once the Central government accepts it, needless to say, is not binding on states—various region-specific rates have been suggested in the report—but once the Centre moves on this, there is pressure to raise wages; more so, given the number of states ruled by the BJP.

In a period of high growth, when firms’ profits are growing fast, along with turnover, such a wage hike can probably be absorbed. But when, as now, economic growth is slow and profits squeezed, the impact could be to reduce labour-intensity. In such a situation, chances are employers will look to find ways to replace labour due to the steep hike. This was happening even well before the current controversy over jobs-growth—Crisil analysis shows a lowering of labour-intensity across most sectors—and this could reduce growth further. A cynical view may be that workers may be influenced more by the wage hike than the possibility of jobs reducing, but a useful corollary is that of MSPs for farm products. The government increased them dramatically to get farmer votes but since this was not matched with an increase in procurement, farmers remained unimpressed; and that, then, necessitated the minimum-income package in the budget.



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