Enhancing technical skill sets of the working population will provide them with better bargaining power
Dr Vijayalakshmi S
Stagflation, a macroeconomic concept, is making a lot of sense, especially for India, which is experiencing severe macroeconomic issues like high inflation and stagnant wages.
The data in the annual report of PLFS (Periodic Labour Force Survey) 2023-24 provide a promising future. For instance, the Labour Force Participation Rate (LFPR) in usual status for persons aged 15 years and above has increased from 57.9% in 2022-23 to 60.1% in 2023-24. The LFPR is the percentage of people working, seeking work, or available for work.
Another appealing data is on worker population (percentage of employed persons in the population), which has increased from 35.9% in 2022-23 to 58.2% in 2023-24. These data clearly indicate a rosy picture of the Indian economy. However, a recent statement by a Niti Aayog member raises certain concerns about these numbers.
Economy on right track but…
The unemployment rate for individuals above 15 years (usual status) has declined considerably from 6% in 2017-18 to 3.2% in 2023-24. This shows that the economy is on the right track. However, this is where one should understand the economics behind these numbers.
The decline in the unemployment rate implicitly means that there is an increase in the aggregate demand in the country. This is directly linked to the wages/salaries of individuals. It is assumed that, as employment increases, the real purchasing power of the individuals is expected to rise. However, in the case of India, the scenario is quite different.
The International Labour Organisation (ILO) report 2024 indicated a shocking fact about the wage or salary in India. It stated that there is a decline in the wage/salary of regular salaried workers from Rs 10,925 in 2022 to Rs 10,790 in 2023. Further, the report shows a similar trend is observed in the real wage of casual workers, which has decreased from Rs 4,712 in 2022 to Rs 4,671 in 2023. However, there is a slight increase in the salary of self-employed.
One of the concerning facts about this data is with respect to the salary of youth. India has the world’s largest youth population and this is hailed as the driver of economic growth. However, their real wage growth presents a gloomy picture. For instance, the real wage of salaried young workers has decreased from Rs 8,371 in 2022 to Rs 7,971 in 2023 (ILO, 2024).
On similar lines, the PLFS annual report of 2023-24 reported not much increase in the wages in the country. A worrying factor is that these wages/salaries are not matching the rising inflation of the country which stood at nearly 5.4 per cent in 2024 (retail inflation).
Now the point is, how do individuals, hit by these factors viz, decline in wage/salary and rising inflation, maintain their standard of living? The answer would be dis-savings. As per the MOSPI data, there is a drastic 17 per cent decline in the new financial savings of the households from 23.3 lakh crore in 2020-21 to 14.16 lakh crore in 2022-23. Even the ratio of household savings to GDP has decreased from 20.1% in 2021-22 to 18.4% in 2022-23.
Lack of skills?
One of the concerns raised by the Niti Aayog over the stagnancy in wages/salaries is a lack of adequate skills among the working population. If we observe the unemployment rate among the educated population of the country, we see a unique pattern. As per PLFS 2023-24, the highest unemployment rate (those above 15 years) with the highest level of education is among graduates with 13% (see infographics). This signifies the problem of skill sets among the educated population.
Further, an interesting pattern has been observed in the unemployment rate among different education levels over the years. For instance, the unemployment rate before Covid (26.3% in 2017-18) was high among those who completed a diploma or a certificate course, whereas in 2023-24, this decreased to 8.6%. This makes us believe that a certificate course or diploma degree enhances skill and hence provides a job opportunity.
The lack of skills among the educated population of the country has raised several concerns. The Mercer Mettle on the Graduate Skill Index 2025 report reveals that only 42.6% of Indian graduates were in an employable state in 2024, from 44.3% in 2023. Now if we map to our previous analysis, unemployment among graduates is showing an increasing pattern due to lack of skills. The report also highlights that nearly 23% of employers anticipate a substantial transformation of technical skills for one-third of the talent base in 2025.
Kind of Stagflation
Connecting the dots, it is high time to understand that there is a unique kind of stagflation expected in the economy. A concerning fact is that with rising economic growth, there is a drastic increase in inequality in the country where the top 1% of the population holds 40% income or wealth of the country.
With 31% of the total population being the middle-class (also growing at 6.3% per year), stagnancy in wages/salary and rising inflation would have a severe impact on the aggregate demand of the country. As reported earlier, one of the key strategies to address this issue is to upskill our working population. This would provide better bargaining power to the worker population as per the Bargaining theory of wages by Davidson.
Even the Solow-Swan model argues that in the long-run economic growth is mainly driven by the productivity of labour coupled with technological progress. Hence, the country should consider increasing labour productivity by enhancing technical skill sets.
(The author is Assistant Professor in Economics, School of Business, RV University, Bengaluru)
