Of the many talking points generated by the unfolding "Khobragade affair", one emerging narrative strand - especially in foreign media coverage - is the deplorable state of wages and working conditions of domestic workers in India.
As Indians we must introspect, we are told by the more earnest amongst the commenting class, on how so many people earn less than what would be considered a "fair" or "decent" or "living" wage by Western standards. One, especially sanctimonious, commentator in the past weekend's New York Times went so far as to describe Indian domestic help arrangements as "exploitative".
To an economist, such utterances appear rhetorical. What, after all, is a "fair" wage?
One plausible definition of a fair wage - or return to any factor of production, for that matter - would be that a worker should earn the value of what he or she contributes to production. In economic lexicon, it would be the "value of the marginal productivity of labour" - how much does one extra worker hired contribute to the totality of production multiplied by the price of the good or service being produced.
As it happens, one of the fundamental propositions of the neoclassical theory of income distribution establishes that undistorted, competitive markets generate exactly this intuitive notion of a fair wage as the market or "equilibrium" wage. What is more, every factor of production receives the value of what it produces, and the sum total of payments to the factors of production exhausts the totality of output - there is no "surplus" left over that may be extracted by a non-productive factor which does not contribute to productivity.
Market failures of one kind or another, of course, will throw a spanner in the works, and cause factor returns to deviate from their marginal productivities. A labour union, for instance, by monopolising and therefore restricting the supply of labour its members provide, is able to drive up wages above the market-clearing level. It hence allows those fortunate enough to have a job to be paid more than they would have received, had competitive conditions prevailed.
On the other hand, in an industry characterised by a single employer (or a cartel of employers who act in unison), both employment and wages will be depressed, with workers, in this instance, receiving less than the value of what they produce. Economists dub this situation the "monopsonistic exploitation of labour", and it is a rare instance in conventional economics in which the concept of "exploitation" of workers may be given a rigorous meaning.
Yet, it seems far-fetched to argue that conditions either of monopoly or of monopsony prevail in the market for domestic labour in India. To the contrary, this probably seems as competitive a market as one is likely to find with many would-be employers seeking the services of many would-be workers. To a first approximation, at least, the low wages that domestic workers are paid in India very likely reflect their low level of productivity, rather than any form of "exploitative" behaviour by their employers or grand conspiracy by the society at large to keep them an underpaid underclass.
By contrast, unskilled workers in the United States, for instance, while poorly paid by American standards, are paid munificently by Indian standards - reflecting not a sense of noblesse oblige from their employers, or generosity of spirit in the American ethos, but rather the higher productivity that their labour generates compared to their Indian counterparts.
Those well-meaning but ill-informed commentators, who decry low wages and poor working conditions of domestic workers in India, would be well advised to study the history of labour in the United States and other rich countries. It was not pious exhortations from commentators, but rapid industrialisation and growth, that led to the upliftment of the working classes. In the manufacturing-intensive sectors, labour unions too played their part by providing a formidable counterweight to the power of large employers.
The same process is in train in India. There is rapid economic growth following on from liberalisation which has worked to pull millions - including those in the domestic employment sector - out of abject poverty into gainful employment. Decades of a rhetorical commitment to poverty alleviation under our regime of central planning failed to do much beyond creating aspirations that remained unfulfilled.
The harsh conditions of domestic employment in India should logically be compared not to the West, but to the alternative - a life of destitution in the rural hinterland. Further, those conditions are markedly superior to what they were even a generation ago. Domestic workers in major metropolitan centres such as Mumbai or Delhi increasingly occupy the lower echelons of the nascent middle class, and they harbour legitimate and realistic aspirations of upward mobility, which economic reform has unleashed.
Indeed, the image of a domestic worker as a feudal serf is more of a myth than reality in urban India. Far from exploitative, urban domestic employment creates opportunities for economic and social empowerment - the first rung, low to the ground though it may be, on the ladder of economic development. In our zeal, let us not knock it away.
The writer is an economics professor at Carleton University in Ottawa, Canada, and is co-author of Indianomix: Making Sense of Modern India (Random House India, 2012)
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