Rural Growth and Distribution: Two Narratives from the PLFS 2017–23

This paper investigates a striking puzzle about rural India that has emerged in recent times: individual real wages have shown weak or stagnant growth for large segments of the labour force, while household per capita incomes have risen materially and, in many cases, at a faster pace among lower deciles. Using microdata from the Periodic Labor Force Survey (PLFS) 2017–23, we document these contrasting patterns and reconcile them. First, we undertake a simple decomposition that separates (i) average real wage per earner, (ii) the number of earners per household, and (iii) household size. Our empirical analysis shows that demographic and labour supply adjustments – chiefly an increase in earners per household driven by rising labour force participation and expanded non-farm employment – account for the bulk of observed gains in household per capita income even as individual real wages remain subdued. Distributional analysis reveals that percentage growth has been relatively progressive (lower deciles recording larger proportional gains), but absolute level gaps have persisted and, in many cases, widened. We further disaggregate decile income by occupational category and find that lower deciles have seen significant shifts from casual work to self-employed status. Since the latter category provides, on average, higher incomes, this can partially explain much of the observed progressivity of household income growth.