E-Paper
Why labour productivity in India stays below par
Increasing labour productivity and lowering the hours of work requires creativity and imagination beyond what we have done so far.
In a recent interview, Infosys founder NR Narayana Murthy was asked for his views on progress achieved in Independent India on the occasion of India@75. In this discussion of different periods from independence till now, Murthy was clear that it is liberalisation and opening the country to international investment that was responsible for the country doing well economically. He also was clear that in this period disparity or inequality in India became very high and that there continues to be a significant number of poor in the country. He also rightly identified low-productivity agriculture as one of the issues of concern and the need to move people out of agriculture to more productive sectors.
Among the many suggestions given by Murthy was the need to create whatever incentive is required for foreign investment for the creation of employment for rural and urban poor in low-tech manufacturing. What does this low-tech manufacturing comprise? Is conventional manufacturing without the use of software and automation low-tech manufacturing? Why would foreign investment for low-tech manufacturing come into India now? And if indeed it would come now, why did it not come in for the last three decades? And why not domestic investment in low-tech manufacturing? These are some questions that come to mind. We leave this idea as we are not sure what Murthy had in mind when he referred to low-tech manufacturing.
A related issue that was discussed in this interview was the low work productivity and how this resulted in low incomes for a large section of the Indian population. On this Murthy repeatedly suggested the way forward was for the youth to be disciplined, work hard and long hours for the next 20 to 30 years. He compared present day India with post second world war Germany and Japan and claimed how corporate leaders in both countries were involved in making workers work for extra hours for rebuilding their respective economies that had been destroyed by war. Apart from the problem of suggesting long hours of work of 70 hours a week, there is also a problem with this comparison. Both Japan and Germany were imperial powers, heavily industrialised before that war. What needed to be done in their case was to rebuild their respective economies (and buildings and factories) that were destroyed by the war. This is very different from what we have here in India today. We are not rebuilding our economy or our industry. We have repeatedly failed to build industry, to industrialise in the scale required in the first place.
In other words, both Germany and Japan were already very high work-productivity economies before the war and at the end of the war what they did was use these high levels of work productivity to rebuild their countries. The extra hours that they put in, assuming this is correct, would only quicken the process of rebuilding. On the contrary, here in India we have always had a problem of low work-productivity. In addition, the low work productivity is such that even after working for long hours – most of India’s workers put in more than 10 hours a day on days they work – the total earnings keep a large number of them poor. This is what makes them the working poor. It is not only those without jobs who are poor, but also those who have work and work for long hours indeed.
Apart from pointing to the fact that a large number of Indians already work for long hours, interesting and valid arguments have been made since the interview criticising Murthy’s suggestions of a 70 hour work day. Scholars and commentators have written about the health consequences and burning out. Others have pointed to diminishing returns – longer hours reduce productivity and yet others have pointed to now this violates safety norms and labour and industry regulations in the country. Yet others have pointed to human rights, workers movements that fought for an 8-hour work day. Women and their role as workers and home makers, difficulties of those with multiple jobs and so on.
What we have in India today is a large section of workers already working close to 70 hours a week (and some even more). The irony is the existence of long hours of work often under conditions of drudgery on the one hand and low productivity on the other. The need therefore would be to increase work productivity and if anything, reduce the number of hours of work.
In the debate on longer hours of work, there are two questions that have not been sufficiently addressed. First, how do we increase labour productivity? And second, under what conditions does higher labour productivity result in higher wages?
Productivity increases are a result of technological changes (better machines, better material inputs) and management improvements (production planning, marketing strategies). Technological changes and improvements have a cost and historically, we have seen that significant investments in such changes that bring about productivity increases happen only when there is a shortage in the availability of one of the inputs including labour. Tight labour markets have led to technological changes in the industrial countries and led to higher labour productivity. Also, when technological changes are driven by such shortages, they are tailored to deal with them. India has been and continues to be a surplus labour economy and there is no incentive for the entrepreneur class to invest widely in productivity enhancing technologies. There was a possibility of the government taking on this role through the public sector activities, but now that is history. In this situation, small little technical changes happen here and there, motivated by various factors, but they are no match for the need of the hour.
Second source of technological change is when technology is procured from foreign sources for production to cater to either domestic or external markets. A good example is our software industry. In such situations, there is improvement in labour productivity but this remains restricted to that sector. And if this results in higher wages, the wage rise is also restricted to that sector resulting in the wage inequalities that we have seen. Therefore, there is no easy solution to the productivity trap we are in.
The second and related question is whether higher productivity automatically leads to higher wages. Here again, when productivity increases are not accompanied by tightness of the labour market or some kind of a bargaining strength of the workforce (through trade unions for example), the chance of commensurate increases in wages are small. Take for example the replacement of a machine in a plastic injection moulding or blow moulding factory. The new machine typically produces 5 to 10 times more plastic bottles per day than the older machine. Of course, there is a cost of procuring and installing the machine. But does this result in higher wages to workers working on the machine? Our studies show that it does not. In fact, the operation of these new machines typically require less skills – place the bag full of pellets at one point and then push a few buttons and wait. Here clearly the work productivity has gone up, but this has made no difference to wages and earnings of workers. And does introduction of the new machine result in lower hours of work? Typically no. In fact, often what happens is hours of work remain the same, and if required less workers are employed; overall, there is an increase in unemployment or underemployment. Meanwhile, the entrepreneur hits a jackpot, that is, if he manages to sell all the extra bottles that he is now producing.
Another example is a situation where the producer is small and markets distant and this constrains the entrepreneur’s ability to appropriate the full value of the product. A large part of the value of the product is appropriated by marketing intermediaries between the producer and the final buyer. A good example of such production is products such as leather goods, carpets and other goods that are often made in small enterprises but have markets that are distant and even international. The product (leather bag in this case) is sold at rock bottom prices by the small producer to an intermediary who then sells it to the second and so on. And finally, it is sold at a rather high price when it gets to the market. In this case the notional work productivity is high, but the realised work productivity is not. In other words, the labour productivity is low simply because the enterprise and worker are not able to appropriate their share of the surplus value and the margins accrue to multiple intermediaries in the system. The only option then is not to remain small and to grow. But then that is another set of issues to deal with.
There is no doubt we need to work towards increasing labour productivity and lowering the hours of work across several sectors in India. This requires creativity and imagination beyond what we have done so far. This also requires us to closely examine other possible roots of the low levels of labour productivity such as our social hierarchies that may offer clues on the way forward.
Jesim Pais is director, Society for Social and Economic Research, Delhi. The views expressed are personal.
