Income levels of salaried class have stagnated in recent years

Income levels of salaried class have stagnated in recent years

Sub : Eco

Sec: Unemployment and Inflation

Why in the News?

• According to Periodic Labour Force Survey (PLFS) reports, while employment in India is rising, real wages for salaried workers have stagnated since 2019.

Key Reasons Behind Wage Stagnation (2019-2024)

Inflation Outpacing Wage Growth

• Rising consumer prices (CPI) have eroded purchasing power despite nominal wage increases.
• Real wages for salaried workers declined by 1.7% in June 2024 compared to June 2019 (PLFS data).

Excess Labour Supply & Declining Returns to Education

• Oversupply of qualified workers has reduced the premium for higher education, limiting salary growth.
• Shift to self-employment due to lack of salaried job opportunities:
  • Self-employed workers increased from 53.5% in 2019-20 to 58.4% in 2023-24.

Reduced Private Sector Investment

• Slower corporate investments have led to weak job creation and wage stagnation.
• Private sector investment-to-GDP ratio fell from 28% in 2011-12 to 21.1% in 2022-23 (RBI data).

Policy Shocks (Demonetisation & GST Impact)

• The stagnation of real wages points to a deep crisis in the informal sector. It is doubtful that there are many other examples of an economy growing at 6-7% per year for 10 years without much increase in real wages. The informal sector experienced three successive shocks during this period: demonetisation, hectic rollout of the Goods and Services Tax (GST), and the Covid-19 crisis
• Disruptions in SMEs weakened formal employment.
• Salaried employment share dropped from 22.9% in 2019-20 to 21.7% in 2023-24 (PLFS data).

Shift Toward Informal & Contractual Work

• Companies increasingly rely on gig and temporary workers, offering lower wages & fewer benefits.
• Casual labour wages increased by 12.3% (real terms) from 2019 to 2024, while salaried wages stagnated.

Potential Impact & Outlook

• Lower real wages impact consumption demand, hindering economic growth.
• Short-term wage recovery unlikely due to weak private investment & job quality concerns.
• Policy interventions needed to boost quality employment & wage growth.

 Way Forward

• Enhance Formal Employment & Skill Development – Encourage labour-intensive sectors & reduce compliance burdens to promote formal jobs.
• Strengthen Social Security & Wage Policies – Expand social protection for informal workers to ensure income stability & healthcare benefits.