No. 55, March 2014

No. 55
(March 2014):

‘Let Them Eat Fat’

Industrial Wages: An Update

Annual Survey of Industries, 2011-12
Industrial Wages: An Update

Some rise in real wages has been achieved, through struggles of workersZ
In an April 2012 post1 we noted that the last few years had seen a wave of labour unrest. We pointed out then that behind this unrest was the startling fact that employers had waged a war on labour, driving down real wages – i.e., nominal wages minus inflation – in the factory sector in the decade ending 2009-10. In particular, real wages had fallen steeply in the automobile sector, which was the hub of unrest. We noted that this was “the background to the rising incidence of what the media refer to as violence – i.e., not the routine violence of the management, but the resistance of the workers.”

Less than three months after we wrote those words, a violent clash took place in the Maruti Suzuki factory in Manesar involving workers and management goons, resulting in the death of a human resources manager (though which side was immediately responsible for his death is still unclear2).

There followed a reign of management-police terror against the Maruti workers, including mass arrests and torture of workers as well as their punitive mass retrenchment. This repression continues to date, as does the struggle of the workers.

Maruti was not an isolated case. Prominent factory workers’ struggles of 2013 include those waged by the workers of Hero MotoCorp, Gurgaon (January-March 2013); the powerloom industry of Ichalkaranji (January-February 2013); Mahindra & Mahindra (M&M), Nashik (March 2013); Bosch India, Bangalore (March 2013); M&M, Igatpuri (April 2013); Nokia Siemens, Chennai (June 2013); Bajaj Auto, Chakan (June 2013); Hero MotoCorp, Haridwar (September 2013); and Hero MotoCorp Gurgaon (September 2013). An important trigger for the recent wave of struggles has been relentless price rise, which has eroded the real wages of contract workers in particular, since they by and large are not compensated for dearness.

Now, the data from the latest Annual Survey of Industries (2011-12) indicate that, despite the repression and hardship they had to face from the employers, workers have won clear gains through their struggles: Reversing a trend of many years, the real wages of factory workers rose by 8.5 per cent in 2010-11 and 6.3 per cent in 2011-12. Real wages of workers in the automobile industry rose by 6.3 per cent and 3 per cent in the two years.

CHart 1

Chart 2

As can be seen from Charts 1 and 2, 2009-10 seems to have been the turning point. Since then real wages have staged a recovery. (We do not yet have data for 2012-13.)

Signals of a downturn, however
At the same time, it is a bit early to celebrate this, for two reasons. First, as can be seen from Chart 1, real factory wages have not yet recovered to where they were in 1995-96, at which point they went into steep decline. In the case of automobile industry workers, they remain much below the levels of even a decade ago, as can be seen from Chart 2.

Secondly, the current recession, combined with high interest rates, has hit demand for automobiles badly. The auto industry appears to be shedding workers: Overall layoffs in the automobile industry were estimated by one report at 15,000.3 The victory of Bajaj Auto over their Chakan workers was an ominous signal regarding the bargaining strength of workers, if their struggles remain confined to individual units and long-worn-out methods. The latest corporate results indicate that the pace of real wage growth has slowed. And the Index of Industrial Production for April-November 2013 records zero growth over last year. (Nor is the slowdown confined to the corporate sector: Real growth in rural wages has fallen steeply, from 13.7 per cent in January 2012 to just 2.2 per cent in August 2013.) It should not surprise us if employers use the current slump as an opportunity to drive wages back down.

In fact, the above data indicate one reason for the unprecedented repression on the Maruti workers (148 still in jail for the last eight months on the charge of murder, over 2,000 dismissed) and the increasing aggressiveness of employers in general: Employers are trying to reverse the gains, limited though they be, won by the workers through their struggles.

At any rate, the share of wages in value added is still depressed
Big business raises the alarm about the recent recovery in workers’ wages, as if it threatened profit itself, which is presumed to be the source of all progress. Quite apart from the fact that this theory is a fraud, big business’s alarm about wages is not borne out by the share of labour in value added. Wages’ share of value-added has slightly improved since 2007-08, but it remains depressed. This should not surprise us: Industrialists actually set the prices of their products as a mark-up over total costs, including labour costs. Hence a rise in their wage costs does not necessarily get reflected as a rise in wages’ share of value added. Wages’ share touched an all-time low of 10.6 per cent in 2007-08, the last year of the boom. Since then, it has slightly risen, but remained in the range of 11.3-12.2 per cent. In the auto industry it is somewhat better, at 16 per cent in 2011-12, but still far below its level in 2000-01.

Chart 3

Chart 4

On the other hand, profit’s share in value added rose from 24.9 per cent in 2000-01 to a peak of 61.8 per cent in 2007-08. Thereafter it fell to 54 per cent in 2011-12. But the ‘culprit’ in this fall was not wages, as business interests would have us believe. As we have seen, wages’ share of value added grew only slightly in the last few years. Rather, it was interest payments that rose as a share of value added, and thus accounted for much of the reduced share of profit.4

Top management grabs a bigger share
Managerial payments too appear to be grabbing a bigger share of value added, even in this period of industrial slump. While managerial payments are not listed separately in the ASI data, we can get an idea of the trend only by looking at the difference between (i) wages and (ii) ‘total emoluments’. While wages are paid to workers, ‘total emoluments’ are paid to ‘total persons engaged’ (i.e., including not only workers, but administrative, clerical and managerial personnel, including CEOs). Wages are a part of total emoluments, but a declining part.

‘Workers’ accounted for about three-fourths of ‘total persons engaged’ in 1981-82, and this ratio between the two has remained remarkably stable since then.5 Any contingent of production workers requires a certain contingent of labour not directly engaged in production as such. Data show that the ratio between the two contingents has not changed over the years.

But, by contrast, the ratio of workers’ wages to ‘total emoluments’ tells a very different story. This share remained stable from 1981-82 to 1991-92, i.e., the dawn of ‘liberalisation’. Thereafter it fell steadily. From 64.8 per cent in 1991-92, it fell to 56.9 per cent in 1997-98, and further, to 48.4 per cent in 2007-08. Despite the recession, managerial pay continued to grow, and so workers’ wages as a share of total emoluments fell to 46.5 per cent by 2011-12. That is, less than half the ‘wage bill’ of industry now goes to workers. While workers’ wages got only 11.9 per cent of net value added in 2011-12, the remaining part of emoluments (i.e., ‘total emoluments’ minus workers’ wages) cornered 13.7 per cent.

What accounts for this growing gap? As mentioned above, the ratio of non-production workers to production workers has not grown at all. So that cannot account for the growing share of their emoluments in the salary bill. The reason for this growing share lies elsewhere: managerial remuneration, which often includes payment to the factory owner-CEO. The growing share of value added going to profit, rent and interest has always been a visible indicator of the growing exploitation of workers. But we must include in this a growing portion of the gap between workers’ wages and total emoluments as well. (A reasonable guess of the portion cornered by the top managerial staff in the form of salaries is 7 per cent of net value added, or around Rs 60,000 crore in 2011-12 – among a relative handful of people.6 This would be quite apart from the amount they earn from their shares in these firms.)

Chart 5

Promoting the myth of labour rigidity – to give a free hand to employers
Along with the growth of wages, another standard complaint of industrialists is the rigidity of labour laws, which they claim make it almost impossible to retrench workers. This, according to  industrialists’ pet economists, inhibits firms from hiring workers. They claim that firms are fearful of being saddled with such workers even when business dries up, and hence prefer capital-intensive methods of production. This is how these economists explain the bias in favour of capital-intensive methods of production. If only there were more labour flexibility, they sigh, there would be more jobs.

However, as brought out by Chart 6, in reality there has been considerable ‘flexibility’ – i.e., the power to throw workers out of work. Factory employment fell in 8 out of 31 years – in one year by almost 17 per cent. And it grew by over 10 per cent in a single year. Such wide fluctuations do not bear out capitalists’ loud claims of labour rigidity. Their real motive in calling for the elimination of labour laws is not to create jobs, but merely to strengthen their hands even further against the workers, and nip in the bud any attempt by workers to demand their rights. Any attempt to reduce capital-intensity in order to create more jobs will have to address very different, basic questions – throwing workers to the wolves will not do the job.

CHart 6




1 . (back)

2. The workers point out that they would hardly have attacked a manager who had in fact been sympathetic to them. (back)

3. “Auto sector skating on thin ice”, Business Standard, 22/10/13. (back)

4. Interest payments rose from 10.7 per cent of value added in 2007-08 to 14.4 per cent in 2011-12. (back)

5. The share of workers in total persons engaged was 77.3 per cent in 1981-82, and 77.7 per cent in 2011-12. (back)

6. If we assume that the ratio between the wage bill of production workers and that of non-production personnel remained the same as in 1991-92, total emoluments would have come to 18.4 per cent of net value added in 2011-12. Whereas, in fact, total emoluments came to 25.7 per cent of net value added. The difference, 7.3 per cent, is a reasonable guess at the size of managerial remuneration. (back)

NEXT: What the Fall in the Current Account Deficit Reveals


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