Jobs rising but salaries not keeping pace with inflation

Sub: Eco

Sec: Inflation

Context:

NITI Aayog member Arvind Virmani has highlighted the employment trends in India, stating that while employment has been increasing, real wages for regular jobs have not kept pace with inflation over the last seven years.
Arvind Virmani identified the lack of skills as a primary reason for the stagnation of wages in India.

Employment Growth in India:

According to the Periodic Labour Force Survey (PLFS) data, India has seen an increase in the worker-population ratio over the past seven years.
The worker-population ratio, which indicates the number of people employed relative to the total population, has improved significantly, from7% in 2017-18 to 43.7% in 2023-24.
This indicates that the number of jobs is growing at a rate higher than the population growth. However, the increase in employment is subject to fluctuations, though the overall trend shows positive growth.

Worker-population ratio:

The WPR is the percentage of employed people in the total population, serving as a key indicator of labour market health and economic activity.
It is calculated by dividing the number of employed individuals by the working-age population and multiplying by 100.

Real Wages and Inflation:

While the number of jobs is increasing, a major concern is that real wages for regular salaried jobs have not kept up with inflation over the past seven years.
This disparity between wage growth and inflation has been a significant challenge for workers, as the purchasing power of their earnings has not improved as expected.

Stagnant Wages vs Rising Prices:

Inflation causes the general price level of goods and services to rise, but if wages do not increase at the same rate, the purchasing power of employees decreases.
This means workers can buy fewer goods and services with the same salary, effectively reducing their standard of living.
As workers’ wages fail to keep pace with inflation, their disposable income shrinks, leading to reduced consumer spending. This can affect demand for goods and services, which in turn can slow down economic growth.