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According to the study titled: Trends in Rural Wage Rates: Whether India Reached Lewis Turning Point by A Amarender Reddy (2013), International Crops Research Institute for Semi-Arid Tropics (ICRISAT/CGIAR) (please click here to download)

•    Many observe that since last decade, labor shortages in rural India have become an issue. Farmers in rural areas blame it on employment guarantee scheme MGNREGA, but there is no concrete evidence to prove this; some also claim that the faster growth of the economy and non-farm sector are the main reasons, which in fact is a good sign. However, there are no studies specifically to test the theoretical and empirical issues of rising wage rates in India. In this paper, trends in rural wages are assessed along the Lewis continuum through wage rates data.

•    The results of the present study show a clear rising trend in real wage rates since 1995, and then accelerating from 2007 onwards in developed states like Punjab, Haryana and Tamil Nadu. Less participation in public works program in Punjab and Haryana also indicates no surplus labor. This confirms that at least developed states in India crossed the Lewis Turning Point (LTP)*.

•    The acceleration of real wages even in slack season indicates that the era of labor shortage has started in rural areas especially in developed states like Tamil Nadu, Haryana, Punjab and Andhra Pradesh, which needs to be tackled through labor saving technology and wide scale farm mechanisation. On the other hand it appears that the underdeveloped states like Madhya Pradesh, Uttar Pradesh and Bihar have not reached the LTP and needs to develop policies to increase productivity of rural labor in these backward states.

•    The results of the study show a clear rising trend in real wages since 1995 more particularly from 2007 especially in the developed states like Punjab, Haryana, Tamil Nadu and Andhra Pradesh. And the acceleration of this rising trend since 2007, even in slack seasons, indicates that the labor shortage is a permanent phenomenon and era of surplus labor is over.

•    At the all India level, there is an upward movement in wage rates since 2006 onwards. The wage rates for mason and carpenter are much above all other wage rates, as both these require specialised skills, then followed by tractor driver. Among agricultural wage rates, ploughing occupy highest wages followed by sowing, harvesting and the lowest recorded among unskilled laborer. It is interesting to see that from 1995 to 2005 there is almost no trend in wage rates among all work types.

•    In slack season, wage rates increased steeply after 2007 onwards for all the categories of work indicating LTP. However, from 1995 to 2006 the wage rates in both slack and peak seasons have not increased. Overall, the sluggish real wages of 1995 to 2005 suggest an excess of rural labor force prior to 2005.

•    Over the years, the real wage rates for the activities such as well digging, Tractor driver and black smith have been increasing steeply. It is clearly evident that the unskilled labor in non-farm activities is being paid more than many of the farm activities like picking, weeding, transplanting and threshing. The highest paid farm activity is ploughing, which is the most common field operation for almost all the crops. Annual growth rates are much higher during 2007-2012, while during 1995 to 2006 there is mixed picture, with some work types showing negative growth.

•    The rapid economic growth in Haryana, Punjab and TN generated a high demand for rural laborers, as reflected in the relatively higher growth rate of wages in these states from 1995 to 2012. From 2005 onward, real wages began to rise substantially and simultaneously in all the states regardless of their development level.

•    There is a significant positive association among the growth in wages of ploughing and harvesting with average days under MGNREGA. The growth of wages for sowing is having negative association with public work days, while growth rate of unskilled labor wage rates do not have any significant association with public work days in the states. Over all, there is no concrete evidence that there is a positive association between agricultural wages and employment days created by public works program across the states.

•    There is no string correlation between share of agriculture in GDP and growth in wage rates, indicating rural wage rate may be induced by expansion of urban (non-agricultural sector) sector in states like TN, Karnataka and Maharashtra or by expansion of agricultural sector as that in AP, Haryana and Punjab. But at least one of the sectors needs to be stronger in creating employment to cross the LTP. Urbanisation is playing an important role in increasing wage rates through upward push in rural labor markets as seen in TN, Karnataka, Maharashtra and Haryana. There is some possible positive influence of public works program (MGNREGA) on wage rates as in AP and TN which ranked first and second in public works program and also growth in wage rates.

•    The wage gap between non-agriculture and agriculture is higher in UP, followed by Gujarat, Rajasthan, Bihar, Orissa, Punjab, MP and Maharashtra than the national average, while lower in Haryana, Karnataka, TN, AP and WB. In most of the state and at national level the wage gap is reducing in rural areas. At national level the wage gap increased from 1995 to 2005, then after decreased. At all India level it increased from 1.5 in 1995 to 1.7 in 2005, then declined to again 1.5 in 2012.

•    The growth of agricultural sector is now about 3 to 4% per annum, where as the growth of industry and service sectors is about 10-12% per annum. Share of agricultural sector reduced from 41% in 1973 to 14% in 2012, with consequent rise in non-agricultural sector from 59% to 86% of the GDP. The share of labor dependent on agriculture decreased from 74% to 50% and share of labor dependent on non-agriculture increased from 26% to 50% during the same period. The wage gap between non-agriculture and agriculture further increased from 3.5 to 4.0 to about 6.3 during the same period. As a result, a large number of laborers moved from the agricultural to the non-agricultural sectors (migration from rural to urban areas).

Note:

* The structural change from an excess supply of labor to one of labor shortage is documented in progress of many developed and developing countries as Lewis Turning Point (LTP).


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