Employment, real wages accelerate in listed firms

Recent regulatory requirements concerning companies have improved the availability of employment data from listed companies. The Companies Act stated that from 2015, all listed companies were required to disclose the number of permanent employees they employed. The Securities and Exchange Board of India (Sebi) has also mandated greater disclosure of employment data of listed companies, but these relate only to the top 500 companies.

Thanks to the requirements under the Companies Act, the number of companies that release employment data has shot up sharply from 2015-16. Till 2014-15, less than 1,300 companies revealed their employment data. In 2015-16, this shot up to 2,905 and in 2016-17, the number was 3,101.

There are over 5,000 listed companies in India but many of these are inactive. Only around 4,500 of these provide interim financial statements and only 2,500 are traded reasonably frequently on the markets.

The 3,000-odd companies that have started providing employment data are the larger and more liquid listed companies. These listed companies employed about 7.5 million in 2016-17. Their total wage bill was ~4.88 trillion.

Employment in these companies grew by 2.5 per cent in 2016-17. This was a much better growth than the measly 0.4 per cent growth of 2015-16 and the 3.3 per cent fall in 2014-15.

Employment data mandated by the Companies Act is provided by companies in their Annual Reports. These become available with considerable lag, particularly in the case of the relatively smaller companies. Thus, as of late October, annual reports of only 1,522 companies that provided employment data for the year 2017-18 were available.

These 1,522 companies account for 79 per cent of the total market capitalisation of all listed companies. They are therefore quite representative of all listed companies.

Employment in these companies grew by a decent 3.7 per cent in 2017-18. In absolute terms, this is not much — just 206,860 net additions — from 5.6 million to 5.8 million. But, it is an impressive growth compared to the record of listed companies in the recent past.

The wage bill of these companies increased by 9.8 per cent. This is slightly better than the 9.4 per cent recorded in 2016-17 and 8 per cent in 2015-16. But this acceleration is much slower than the acceleration in the headcount. This shows up in the fall in the growth in average wages per employee.

Wages per employee grew by 5.9 per cent in 2017-18. This was lower than the 6.8 per cent growth recorded in 2016-17 and the 7.6 per cent growth seen in 2015-16. Before this, for five years, wages per employee grew at a rate between 10 and 14 per cent per annum.

From the analysis thus far it appears that while the growth in headcount has been accelerating in recent years, the growth in average wages has been decelerating. But this picture changes for the better when we adjust the growth in wages for inflation. Inflation as measured by the consumer price index has been falling. It fell from 5.7 per cent in 2015-16 to 4.1 per cent in 2016-17 to 3 per cent in 2017-18.

As a result of this relentless fall in inflation, the growth in real wages turns up as an accelerating series. Real wages grew by 1.8 per cent in 2015-16, then by 2.6 per cent in 2016-17 and then 2.8 per cent in 2017-18.

We therefore see accelerating employment and accelerating real wages in listed companies since 2015-16.

The spoiler is that these growth rates are too low. The best companies of India should be hiring a lot more aggressively than what we see here to deal with the jobs challenge in India. This is so because the challenge is not only in creating new jobs but also about creating good quality jobs. Good quality jobs are best provided by these large and publicly listed companies.

In this context, it is interesting to note that these companies seem to be growing their wage bill at a faster rate than the larger set of “all” companies. The total wage bill of all companies in CMIE’s Prowess database grew by 8.9 per cent in 2016-17 and 8.1 per cent in 2017-18. These growth rates are lower than that of the listed companies where the total wage bill grew by 9.3 per cent and 9.5 per cent, respectively in the two years.

It is important that even these remaining companies show an acceleration in employment and in real wages.