Declining Share of Wages in Organised Indian Industry (1973-97): A Kaleckian Perspective

The share of wages in organised Indian industry declined considerably between 1973 and 1997. The end to end drop was 19 per cent, and the wage share fell from 51.7 per cent to 32.8 per cent. In proportionate terms, the decline in wage share was between 30-40 per cent. The period of analysis divides into two phases. In the first phase of fifteen years (1973-87), wage share declined by 5½ percentage points, while the fall accelerated after 1987, and the decline from 1987-97 was by 13½ percentage points. If it is possible to identify the period 1987-97 with the period of liberalisation, it may be inferred that 70 per cent of the decline in the wage share was during the period of liberalisation. The period of liberalisation has witnessed an acceleration in the decline of the wage share. Faster growth of low-wage-share industries was responsible for a substantial part of the decline the share of labour. More than 1/3 of the total decrease in the wage share (1973-97) was due to the faster growth of low wage-share industries. Growing importance of low wage-share industries was the sole reason for the decline in wage share between 1973-87. After 1987, the relative growth of low wage-share industries contributed only 9 per cent of the fall in the aggregate wage share. In the period as a whole, the decline in wage share at the individual industry level contributed at least half (9½ percentage points) of the total decline in the aggregate wage share. In the first period, 1973-87, the industry level wage shares actually rose. However, in the second period, the industry level shares have been falling rapidly. They fell by 12.3 percentage points against the total decline of 13.5 percentage points in the wage share in this period. Thus, the decline in industry level wage shares contributed more than 90 per cent of the total decline in wage share in the second period (1987-97). If this period may be called the period of liberalisation, it may said that wage shares fell drastically at individual industry levels during liberalisation. For the period as a whole, the decline in industry level wage share was entirely due to the rise in material/wage (m/w) ratio. Constant composition mark-up remained the same end to end between 1973- 97. This study also examines the reasons for the consistent rise in m/w ratio and finds it to be due to technical change. Almost the entire increase in the m/w ratio was due to the rise in the material used per employee. This index rose from 100 to 380 over the period. Most of the increased material used found its way into greater output. Thus, O/L (index) rose from 100 to 346 over the time period. A small fraction of the rise in the material intensity per employee went into a rise in the material output ratio, whose index rose from 100 to 110. Thus, the study reveals a drastic decline in the aggregate share of wages between 1973- 97. This decrease came about as a result of a faster growth of low wage share industries over the period, as well as a rise in the material intensity per employee in the production process. Thus changes in output mix and technical change were responsible for the 19 percentage point drop in the share of wages. Mark-ups played no role in the decline in the period as a whole.