REAL WAGE RATE FALLS IN CORPORATE INDIA

The Indian corporate sector scaled some handsome growth rates in 2018-19. Preliminary results based on a sample of 7,739 companies for which the Annual Report and complete audited financial statements were available for the year show that sales grew by 16.4 per cent and profits grew at more than twice that rate. This is the best performance by the corporate sector in several years.

Results of listed companies (a little over five thousand) show that sales grew by 17 per cent in 2018-19. This was the highest growth rate since 2011-12. Net profit grew by 42 per cent, which is the best performance in 12 years, that is, since 2006-07.

Compensation to employees grew by a slower 11.2 per cent. In what looks like an extraordinarily good year in 2018-19, growth in compensation to labour was not correspondingly extraordinary. Labour has been recipient of a stable year-on-year growth in compensation compared to growth in profits earned by enterprise.

In the past six years, wages have grown on an average, at 10 per cent per annum within a narrow range of 9-12 per cent per annum. During the same six years, sales averaged a growth of 6 per cent per annum in a wider range from -3 per cent to +17 per cent. And, net profits grew at a rather modest average of less than 2 per cent, but it bounced from -33 per cent to +34 per cent.

The lower growth in wages in 2018-19 compared to sales and profits is therefore, nevertheless, comforting. But, this comfort is easily flustered when we study the composition of the growth in wages in terms of growth in employment and growth in wage rates.

A much smaller set of companies provide data on employment. For the year 2018-19, while CMIE has processed 7,739 companies, data on employment was available in only 1,777 of these.

Interestingly, these 1,777 companies also show a 11 per cent growth in the wage bill. There is good reason to believe that this relatively small sample of companies reflects the situation in the larger database of the corporate sector.

Usually, a little over three thousand companies reveal information on employment in a year. These are mostly listed companies. In 2017-18 financial year, 3,213 companies provided such information. These companies employed 7.6 million people. The 1,777 companies of 2018-19 account for only 55 per cent of the sample of 2017-18 but they employ 6.5 million people and so account for 82 per cent of the employment. Thus, these 1,777 companies are the bigger employers. And, in the sizewise log-normal world of companies the sample is a good representation of the universe to derive inferences on aggregate growth.

What do these 1,777 companies tell us about employment and wages in the corporate world?

First, the 11 per growth in wages in 2018-19 was the result of a 5.2 per cent increase in employment and a 5.3 per cent increase in wages per employee — the wage rate.

Second, the 5.2 per cent growth in employment in 2018-19 was the highest growth in eight years.

Third, the 5.3 per cent growth in wages per employee is the lowest growth in nine years.

Thus, the faster growth in employment in 2018-19 has come at the cost of a slower growth in the wage rate. So far, in the preceding eight years, while employment growth has been anaemic, wages were growing at a relatively better clip.

In the eight years ending 2018-19, employment grew at 1.8 per cent per annum and the wage rate by 9.4 per cent per annum, on an average. They have combined to give a 11 per cent per annum growth in total compensation to employees in these larger companies.

The fall in growth of the wage rate in 2018-19 came at a particularly bad time. This was the year of a rise in the inflation rate. Consumer price inflation was 5.5 per cent in 2018-19. Thus, the 5.3 per cent rise in the wage rate translates into a 0.12 per cent fall in the real (inflation-adjusted) wage rate in 2018-19.

It is logical to expect wages to grow sufficiently to beat inflation. But, in 201819, the wage rate increase in India’s best employers could not keep pace with inflation. This is disquieting, if not ominous.

The average wage rate for the 6.5 million employees of the 1,777 companies in 2018-19 was ~589,120. It was ~559,365 per employee in 2017-18. The median wage rate moved up from ~489,352 to ~519,836.

Over the next few weeks, the sample of companies for which employment data is available for 2018-19 will increase and stabilise at a little over three thousand. The larger sample is expected to reduce the 5 per cent plus growth in employment we see so far. This is because companies that perform relatively poorly provide results later than the good performers. But, it is unlikely that these laggards will be able to raise the wage rate growth estimate which has fallen below inflation.