Is there deferred distress in rural labour markets? | Latest News India - Hindustan Times
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Is there deferred distress in rural labour markets?

ByVineet Sachdev, Abhishek Jha, New Delhi
Jan 09, 2021 04:53 AM IST

This generated fears of a glut in rural markets and hence a rise in unemployment and crash in rural wages, which had already been declining.

The Indian economy suffered an annual contraction of 23.9% during the April-June quarter of the current fiscal year. This was largely due to a 68-day nationwide hard lockdown that started on March 25 to prevent a rise in Covid-19 infections. Among the biggest manifestations of the lockdown was a large reverse migration of workers from the cities to the countryside. This generated fears of a glut in rural markets and hence a rise in unemployment and crash in rural wages, which had already been declining.

India does not have official high-frequency data on rural employment.(Reuters)
India does not have official high-frequency data on rural employment.(Reuters)

India does not have official high-frequency data on rural employment. While the annual Periodic Labour Force Surveys (PLFS) are an improvement over the earlier practice of five-yearly Employment-Unemployment Surveys (EUS), quarterly PLFS data is only available for urban areas. Even these surveys do not give information on wages and size of the labour force. The latter matters because, absolute number of jobs, for a given unemployment rate, could increase or decrease with the size of the labour force. To be sure, private estimates such as those from the Centre for Monitoring Indian Economy (CMIE) and Purchasing Managers’ Indices (PMI) have been talking about continuing job losses in the economy.

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An HT analysis of the latest available rural wage data (until September) , which is compiled by the Labour Bureau, suggests a growing, although deferred, stress in rural labour markets.

Real rural wages grew during the lockdown but have started falling again

Inflation-adjusted rural wages had been falling on an annual basis from October 2019 to March 2020. There is no data on rural wages for the month of April, perhaps because of the near total lockdown. However, rural wage growth jumped into positive territory in May, June and July. This trend has reversed itself in the months of August and September, when real wage growth turned negative again. An occupation-wise breakup of rural wages shows that the non-agricultural wages are facing a bigger squeeze than agricultural wages. The former started falling from August itself, while the latter only fell in September. Interestingly, agricultural wages had been contracting in the months of May and June while non-agricultural wages had risen on an annual basis. Among non-agricultural occupations, handicraft workers suffered the biggest fall in wages in August and September, which suggests that this could be a result of weak demand from urban markets. To be sure, wages for all non-agricultural occupations, except beedi making, had entered contraction zone by September 2020.

Going forward, the base effect will have to be filtered in

Rural wage data for October will be available next month. It remains to be seen whether there is a recovery or the trend of contraction only became stronger. Any conclusion on the trend in wages will have to take into account the base effect because of an annual contraction during the October 2019 to March 2020 period. For example, even if average rural wages grew 1% in October 2020, they still would be lower than the October 2018 levels. The rate of contraction in rural wages increased from October to December 2019. This means that 2020 wages will have to grow at a higher rate to maintain even 2018 levels.

High inflation is putting a squeeze on rural incomes

Monthly inflation, as measured by the Consumer Price Index (CPI), has been above the upper limit of the RBI’s tolerance band of 6% for eight months in a row. CPI rural has gained 16 basis points between April and September. One basis point is one hundredth of a percentage point. Quickening inflation is a major reason for the growing squeeze on rural wages. Nominal growth in rural wages during August and September 2020 was higher than what it was a year ago. Yet, wages contracted in real terms due to higher inflation in 2020. With retail inflation having peaked in October 2020, and expected (according to a Reuters poll of economists) to fall sharply to 5.3% in December from its November value of 6.9%, there should be some easing of pressure on real incomes in rural areas. To be sure, the data also suggests a growing weakness in rural labour markets. Even nominal wages have declined month-on-month for two successive months in August and September. This has not happened in successive months ever since it declined for two successive months in December 2013 and January 2014. The last time nominal rural wages declined month-on-month was in December 2018.

Different trends across states

State-wise, real rural wages in five of eighteen states for which data is available -- Punjab, Haryana, Kerala, Assam and Tripura – were the lowest in September 2020 in the past five years. In Gujarat and Himachal Pradesh the wages in September 2020 were the lowest in the last two years, while in Uttar Pradesh, the wages were the lowest since October 2016. The three states that have seen the biggest fall in their wage rates (inflation adjusted) since June – the month after which wages started declining nationally month-on-month are Madhya Pradesh (21.26%), Himachal Pradesh (10.33%), and Assam (8.24%).

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  • ABOUT THE AUTHOR
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    Abhishek Jha is a data journalist. He analyses public data for finding news, with a focus on the environment, Indian politics and economy, and Covid-19.

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