Share of wages in GVA at 12-yr high

Economists say increase in share of wages and emoluments suggests more skilled labour being employed by industry

Amid a heated debate over employment generation in the economy, the share of wages paid to workers in gross value added (GVA) has risen to a 12-year high of 12.3 per cent in 2015-16.

Total emoluments, which include compensation of supervisors and managers as well, have surged to a 14-year high of 26.7 per cent of GVA in 2015-16, shows the latest data from the Annual Survey of Industries (ASI).

With the ASI data also showing that number of workers grew by around 4 per cent per annum between 2007-08 and 2015-16, this increase in the share of wages and emoluments suggests that more skilled labour is being employed by industry, say economists.

The ASI covers establishments which employ 10 or more workers with power or 20 or more without power. The latest data show that the share of wages to workers in GVA has risen to 12.3 per cent in 2015-16, up from a low of 9.2 per cent in 2007-08. This marks a reversal of the declining trend over the past decades. The share of wages to workers had declined from 28.5 per cent of GVA in 1980-81 to 21.4 per cent in 1990-91 and further to 15.5 per cent in 2000-01. Similarly, emoluments, which include both wages as well as non-wage benefits that accrue to workers and compensation paid to supervisory and managerial staff, have risen to 26.7 per cent of GVA in 2015-16, up from 19.1 per cent in 2007-08. With the share of interest paid also rising to 14.3 per cent of GVA in 2015-16, up from 9.3 per cent in 2007-08, the share of profits has declined to 40 per cent of GVA in 2015-16, from 53.8 per cent in 2007-08.

This rise in the wage share, in the face of limited employment growth, implies that wages per worker are rising. A possible explanation for this trend is substitution in favour of skilled workers, say economists.

“The distribution of productivity gains is going disproportionately to labour,” says Pronab Sen, former chief statistician of India. “There are two possible explanations for this — either employment is on the rise, or wages per worker are on the rise.”

The ASI data of employment show that the number of workers has grown at roughly 3.9 per cent per annum between 2007-08 and 2015-16. Growth of total employees is only marginally higher. Sen, therefore, contends that it is likely that with rising capital intensity of production, the rise in the share of wages implies more skilled labour is being employed. “The increase in the share of wages in GVA after 2007-08 could perhaps be explained by the relatively faster growth in real wages of contract workers during this time,” says Radhicka Kapoor, senior fellow, Indian Council for Research on International Economic Relations.

Much of the growth in employment since the early 2000s has come from contract workers. But it is capital-intensive industries such as auto which have seen a larger increase in contract workers. Another explanation, as Kapoor points out, is that “wages of supervisory and managerial employees have been rising rapidly. Although their share in total persons engaged has remained roughly stable, their wages have risen sharply and that has led to an increase in share of emoluments in GVA. It would be reasonable to say that these are the skilled employees.”

Sector-wise data show that share of total emoluments in GVA was highest in labour-intensive sectors such as repair and installation of machinery and equipment, leather and related products, wearing apparel and textiles, while it was lowest in sectors such as coke and refined petroleum products, tobacco, chemicals and products thereof, cotton ginning, cleaning and bailing, and seed processing for propagation.

Between 2010-11 and 2015-16, the share of emoluments in GVA has risen in almost all sectors. It has risen the most in sectors such as repair and installation of machinery and equipment, leather and related products, basic metals, fabricated metal products and textiles. Among the larger states, the share of emoluments in GVA is lowest in Uttarakhand, Himachal Pradesh, and Gujarat, while it is the highest in West Bengal, followed by Chhattisgarh, Jharkhand, Punjab, and Kerala.