Inequality can be defined as the state of not being equal, specifically in terms of status, rights and opportunities available. Economic inequality is a major concern under the broad rubric of a cherished goal of socio-economic justice. Economic inequality refers to how economic variables are distributed—among individuals in a group, among groups in a population, or among countries. Inequalities in standards of living, such as inequities in income/wealth, education, health, and nutrition tend to be the thrust areas of Development theory.
A wage can be defined as a type of remuneration or compensation in the form of money paid by the employer to the employee in return for work accomplished. Usually, a wage is paid for manual or unskilled work on an hourly, daily or piecework basis. For working population, wage is the largest chunk of income and therefore, parallels can be drawn between wage distribution and income distribution. Different wage rates underlie different job hierarchies. Multiple kinds of labour use exists to accommodate varied wage systems and modes of payments. Multiple wage rates co-exist for different sectors, Occupations and tasks within a local rural or urban labour market. Wage earners exist simultaneously with the self-employed to comprise roughly half of the country’s labour force.
Wage inequality can be understood as the extent to which wage distribution in an economy is uneven i.e. the gulf in wages between the rich and the average worker. As per the Employment and Unemployment Survey (EUS) of National Sample Survey Office (NSSO), in 2011–12, the average wage in India was about 247 rupees (INR) per day, and the average wage of casual workers was an estimated INR 143 per day. Only a limited number of regular/salaried workers, mostly in the urban areas, and the highly-skilled professionals earned higher average wages. The labour market is of prime importance in understanding trends of income and wage inequality among developing countries. Classical economics fails to capture the complexities of the labour market that hinder it from being a level playing field. In India, inequities exist in wages paid to workers on several grounds, including on the basis of caste, gender, level of education, sector of work, place of residence (rural/urban). In fact, there is a continued discrimination and exploitation of certain categories of workers due to apparent individual and labour market features.
Empirical evidence goes to show that neo liberal reforms ushered in 1991 in the India in the name of higher economic growth have only sharpened inequalities and skill premium. It is argued by Deaton and Dreze that consumption inequality in India had increased in the 1990s. Some explain this inequality as a fall out of household incomes in upper income brackets in 1980’s and 1990s. According to an ILO Report, up till 2011, average daily wages almost doubled but wage inequality and low pay continue to be major bottlenecks. There is flexibility in the labour market, in the form of waning social security of workers and informalisation. Doing away with trade barriers and greater openness has a direct relationship with increasing labour demand elasticity. This is also responsible for erosion of bargaining power of labour, and is a blow to unionization of workers. In India, trade openness is directly linked to enhanced labour productivity on the one hand, and wage inequality in the organized manufacturing sector on the basis of level of skilling. There is a relatively higher demand for skilled workers to cope up with the rapid technological change, which is an offshoot to wage inequality.
The Gini Index is a quantitative tool that is employed for the assessment of wage inequality. It is a popular income inequality metric that employs a 10 point scale to show deviance from perfect income equality. In Panchanan Das’s study, the index measures wage inequality both within workers as well as between their sector-wise groups in rural and urban areas. The Gini index can be deconstructed into three major components which are as follows, inequality within group (Gw), between group inequality (Gb) and inequality due to overlapping groups (Gt)’ i.e.
G = Gw + Gb + Gt
The distinction between the dynamics of formal sector and informal sector is one important dimension for understanding wage inequality. The informal sector employs over 60% of workers while the remaining workers are absorbed by public and private formal sectors. The conditions of Informal sector workers is pathetic with long working hours, a bad work environment and no employment benefits. It almost resonates with Guy Standing’s notion of ‘The Precariat’. Often, these workers are engaged in jobs with low productivity leading to low incomes. Regression based decomposition by Gary Fields showed that Education accounted for 32% of wage inequality within Formal sector. This was succeeded by factors like experience and occupation type. This was not the scenario for Informal workers in informal sector, where gender was more important. For informal workers in formal enterprises, education was not a major source of wage inequality.
There exists significant wage inequities among as well as within sectors leading to worker inequality. Following dimensions of wage inequality are reflected in Das’s study based on 61st round (2004-05) household survey data on employment and unemployment.
• Wage inequality by Sectors in India
Formal sector workers enjoy higher wages with much better working conditions, employment security and social security. Wage inequality is higher in private formal sector (Gini 0.49) compared to both public sector (Gini 0.36) and the entire informal sector (Gini 0.44).
• Rural and Urban Wage Inequality
Approx. 70% of workers are engaged in rural economy, but average urban wage is three times of the average wage of rural workers. Workers in urban areas earn higher wages in public sector and informal sector. Wage inequality is relatively higher in rural India (Gini 0.56) compared to urban India (0.49)
• Rural and Urban Wage inequality by Sectors
In Informal sector, wage inequality among rural workers (0.38) is lower compared to their urban counterparts (0.41). But, among public and private sectors, wage inequality is higher for rural workers Vis a Vis urban workers.
• Gender Wage Inequality
Indian labour market imposes significant wage gaps between men and women workers. Average male wage tends to be more than two and a half times of average female wage. Higher wage inequities are faced by women (0.58) compared to men (0.50). The difference in daily wage of men and women is still above the global average of 23%.
• Gender Wage Inequality across sectors
Women wage inequality is greatest in public sector (0.43), while men wage inequality is more in the private formal sector (0.43).
• Wage inequality by nature of employment
The employment status of workers is also an important factor in ascertaining wage inequality. According to the study, roughly 58% workers are employed on casual basis and only 42% of workers are hired as regular employees. Incidence of wage inequality is greater among regular workers (Gini = 0.45) than among casual workers (Gini = 0.36). More often than not casual workers are discriminated against permanent workers.
Wage inequalities also exist across regions, therefore, wage growth is far more rapid in high wage states in comparison to low wage states as highlighted by ILO’s India Wage Report. Daily wages in urban areas (approx. ?384) are almost double the wages in rural areas (approx. ?175). Therefore, the ILO has called for stronger implementation of minimum wage laws and strengthening of collective bargaining mechanisms by workers.Worker unity and efforts at collective bargaining is essential to resolve worker problems like persistent low pay in certain sectors and to bridge the wage gaps between rural and urban, male and female, and regular and casual workers. According to the Report, the Gender wage gap significantly declined from 48% in 1993-94 to 34% in 2011-12.Yet, the pay gap remains high vis a vis global standards. Mean wages of casual rural female workers is the lowest among all categories of workers, at barely ?104 a day.
There is also a caste-based and religion-based dimension of wage inequality, as reflected in Bhaumik and Chakraborty’s study using NSS data for 30,000 people for 1987 and 1989. The mainstream idea of upper castes being superior to SC’s, ST’s and OBC’s in terms of wages as well as Hindus being better off than Muslims was proven correct in their study. It is argued that inter-caste and inter-religious differences in educational parameters as well as work experience have a direct bearing on wage differentials.
Preet Rustagi, in his paper views gender inequality in Indian labour market through a multi-dimensional prism. It focuses on labour market segregation and gendered division of labour that arise from the larger social structure. Wages and incomes in India have been rising over time, yet gender inequities is a socio-economic reality today. Anti-women bias in the labour force is reflected in the peculiar occupational pyramid, where women workers are mostly concentrated at the base with lower end jobs and thus earning lesser wages compared to men. Often women’s labour power is limited by several factors like age, education, marital status, fertility, poverty level and level of skills or training.
Though Female Labour force participation may be increasing, women enter the labour market as workers much later than men. This delay in entry can be traced to gendered societal expectations and also to varied educational pursuits and training. The fact that more number of women are leaving the domestic sphere and joining the workforce needs to be lauded yet it is a long march for women to achieve decent and equally remunerative work. More women workers can also be a consequence of extreme poverty and desperation for income, rather than improvements in their education and skilling. A situation where illiterate and unskilled women join workforce in large numbers in manual hazardous jobs, important questions need to be raised on female LFPR.
Yoko Kijima’s paper reflects on change in wage structure in urban India in 1980’s and 1990’s. His focus is on log weekly wages for full-time workers, who are defined as those who worked at least five days per week. He notes an increase in wage inequality among male workers in urban India. The analysis pointed that real weekly wage rose in all wage groups at increasing rates and that the rate of the wage increase is much faster in the higher wage group than the lower wage group. Wage inequality showed an increasing trend even before LPG Reforms but it rose rapidly 1993 onwards. The rise in inequality between 1983 and 1993 was mainly attributed to increase in wages of the wealthy group above the median. This was also noted by Thomas Piketty who mentioned an increase in the income share of top percentile based on tax return data.
In rural areas, growth in wages is more equally distributed by earning groups before the reform period. This tendency changed in the post reform years (1993-2004) marked by a U-shaped pattern of wage growth showing a “polarization” of wage distribution. This wage growth pattern is probably due to unbalanced development, with the manufacturing sector showing the “missing middle” problem. Both demand and supply side reasons are at play in higher earnings growth at lower and higher end but a dip in growth in the centre.
Mazumdar, Sarkar and Mehta in their paper discuss determinants of wage inequality by studying the impact of two factors, namely education and formality. It is noted that a casual worker’s wages are largely unaffected by age or education. But, among regular workers, differences in education level clearly translate into wage differentials. Also, proportion of “middle and secondary” school dropouts has reduced in urban formal sector, unlike in the Informal sector. The main increase in inequality at the upper end can be traced to changes in the education groups of higher secondary and graduate wage earners. A huge difference in differential returns to education is seen for 1999 and subsequent NSSO rounds. In 1999, the increasing returns to education stops at the level of higher secondary but, in successive rounds, it continues through graduate and higher levels. The formal-informal wage gap is more pronounced when formal workers are seen as beneficiaries of social security
Tertiary sector in Indian economy is marked by a high degree of inequality and since major chunk of country’s GDP comes from the Service sector, it further fuels inequality. Inequality in India will only increase if corrective policies are not employed effectively like policies to enhance schooling investments of the poor and to enhance manufacturing output.
Mehtabul Azam in his paper analyzed changes in wage structure across the entire wage distribution for the period 1983-2004. He argues that wage inequality in urban India would only rise with changing educational composition in times to come as more workers will get acquire tertiary education. This would likely contribute to intra-group and inter-group inequality in the future as returns to tertiary education are very diverse.
In an emerging economy like India, a sustained period of strong economic growth has helped lift millions of people out of absolute poverty. But the benefits of growth have not been evenly distributed and high levels of income inequality have risen further. The secondary sector must urgently enhance skill level of its industrial workforce to play a major role in output and employment growth. There is greater informalization of formal sector jobs that needs to be urgently tackled. In this scenario, educated and trained individuals often work in vulnerable kind of employment. Enterprise functioning reflects a race to the bottom, where wages and labour standards are constantly lowered to bring economic “growth”. This does nothing but aggravates inequalities. Sub-contracting of jobs that provide no employment benefits to workers and taking place at a rampant scale in both the public and private sectors. This creates a major wedge between the privileged few with permanent jobs and the rest with contractual employment in the same sector.
Higher inequality also translates to higher informality in the economy, which mostly creates more jobs for the deprived.”We have reached a tipping point. Inequality can no longer be treated as an afterthought. We need to focus the debate on how the benefits of growth are distributed. Our report ‘In it Together’ and our work on inclusive growth have clearly shown that there doesn’t have to be a trade-off between growth and equality. On the contrary, the opening up of opportunity can spur stronger economic performance and improve living standards across the board!” OECD Secretary-General
Though India has a Minimum Wages Act introduced way back in 1948, the system is very complicated. Minimum wages are not available to all workers or employees of the State government but only limited to those involved in specific employment under the “scheduled” category. Therefore, the country lacks a universal wage floor for all workers.
There have been talks on the need for such a wage floor since the 1970’s and a wage floor was introduced back in 1990’s, but it is not legally binding. More than 60% workers are paid less than national minimum wage and the incidence of this is higher among women workers.
The India Wage Report makes a host of recommendations to improve the current minimum wage system. Some constructive action in the form of extension of legal coverage to all workers in an employment relationship, regular conduct of evidence-based adjustments and consolidation or simplification of minimum wage infrastructure will certainly be fruitful. Regular data collection would help in program evaluation and analysis. All stakeholders must join hands together to ensure effective foolproof implementation of minimum wage law at the earliest.