Manufacturing wages are heading up amid labour shortage in country

Pay is rising faster than in other segments of the economy

Industry captains recently spoke about the difficulty in finding skilled labour as tens of thousands of jobs go unfilled.

Labour shortages have been a persistent problem even before the pandemic took hold, and afterwards when millions of workers left cities to return home.

The crunch this time may also be translating into higher wages in the unincorporated manufacturing sector, according to a Business Standard analysis of data from two government surveys. Unincorporated business establishments – proprietorships, partnerships, self-help groups and others – are not registered under rules governing companies. The government surveys them to get a sense of India’s informal economy. The analysis considered the latest 2022-23 survey and compared it with a similar study in 2015-16, which was the last year before the pandemic for which such data is available.

Manufacturing wages grew 53.7 per cent in the period between 2015-16 and 2022-23. It was higher than the wage growth for all workers including those employed in trade establishments and other services (chart 1).

A back-of-the-envelope calculation suggests that manufacturing wages are up 13.6 per cent after adjusting for inflation in this period. This is higher than the inflation-adjusted wage increase of those working in trade establishments (5.5 per cent) and other services (-6.8 per cent). Overall inflation-adjusted wages are up 2.5 per cent across segments including manufacturing, trade and other services.

Jayati Ghosh, professor of economics at the University of Massachusetts Amherst, says since emoluments capture the total wage bill, that of workers and of white collar and professional workers, “the aggregate may be distorted by higher emoluments going to upper salaries.”

Unincorporated enterprises in manufacturing lost nearly 1.8 million establishments and shed 5.4 million jobs between July 2015-June 2016 and October 2022, Business Standard reported earlier.

While the rise in wages in manufacturing supports the “whole idea of a K-shaped recovery”, some sectors like the “higher value automobiles may be doing better,” said Ghosh.

“The manufacturing segment that is catering to the upper 10-20 per cent is doing alright. Some of the smaller companies that are catering to or are outsourcing suppliers to the larger companies, may have been doing well,” she said.

Unincorporated establishments can have formal and informal workers. Formal workers are those with paid leave and social security. Informal workers don’t get such benefits. The pay gap between the two can be in excess of 70 per cent, according to the 2022-23 survey with additional differences based on location (chart 2).

Labour productivity metrics show a sharper improvement at manufacturing establishments, though gross value added (GVA) per worker remains below that for trade and other services. The gap is narrower than it was in 2015-16 because of the sharper rise in productivity (chart 3).

Regular studies can help better track the changes in manufacturing, according to experts.

“A significant part of the economy and workforce is in the unorganised sector, or units that employ less than 10 workers. Without annual figures on this sector it is difficult to estimate the GVA for a significant part of the non-farm economy,” says Santosh Mehrotra, visiting professor of economics, Centre for Development Studies, University of Bath, UK.