Workplace woes and wages are in the spotlight yet again. Iconic business leaders are turning into social media heroes and villains depending on where they stand in the debate on quantity versus quality of work. Suddenly, where you stand and where you sit are both becoming important, as is a renewed discussion on work culture, labour productivity and a widening chasm between the financial compensation of employees in general and that of the CEO or leaders at the top. There is now a new term creeping into the common lingo: Employed poverty – where workers hold jobs but are forced to cope with and survive on inadequate wages.
Coinciding with this, is the news of the Union cabinet approving the 8th pay commission to revise the compensation for 50 lakh central government employees and 65 lakh pensioners.
Clearly, for the government servants the goal is to protect them against inflation. There is dearness allowance on a regular basis and a pay revision every five years, which, is not linked to productivity enhancements, as pointed out by a leading economist and former banker, who does not want to be named. Therefore, is there something to learn from the public sector on wage revisions or is the mechanism of market forces and labour availability, the way forward in the private sector? Or should productivity enhancement be the deciding metric in any pay revision?
Baumol’s Cost Disease
Manish Sabharwal, co-founder and vice-chairman of TeamLease, a leading staffing and human capital firm, refers to the Baumol effect or the Baumol’s cost disease put forth by William Jack Baumol, the celebrated American economist and the professor Emeritus at Princeton University, “who did a lot of work on the cost disease and how costs keep escalating without productivity going up.” The same, he says, applies to the government. “This problem is compounded by the reality that we pay too much at the bottom (within the government) and pay too little at the top. Also, across the board increases in salary blunt meritocracy. If a low performer and a high performer are treated equally then the low performer celebrates and the high performer gets frustrated.”
More People Than The Jobs
In a country where 12 million people are added to the workforce every year (and the number much higher if the backlog from the COVID years is also included) and the organised sector (including the government / public sector) accounting for just around 11 per cent of total employment, job creation, and high-paying ones at that, remains a challenge.
Sabharwal has maintained for some time now that India has a wage problem and not an unemployment challenge. “A poor man cannot afford to stay unemployed. It is a luxury good,” he says.
On the recent verbiage across articles both online and in print on a widening gap between the wages for the employees in general and those who lead like the CEO, he says: “This is a child of the knowledge economy. A good plumber, electrician or a carpenter is four times better than a bad one, a good software programmer is 100 times better than a bad one and a good investment manager is 200 times better than a bad investment manager and a good CEO is 400 times better. It is the nature of knowledge work also.” It is apparently not just about more financial compensation to those who take big bets, go the extra mile and can sense an opportunity that others miss. To Sabharwal, “if you shift from working with your hands and legs to working with your mind. There is a power law which operates, where in 90 per cent of the results get generated by 10 per cent of the people at the cognitive level. At a physical level, there is some difference in productivity but it is not as substantial or as pronounced as it is in knowledge works.”
“So,” he says, “I don’t think this is new and it is being accelerated due to more and more shift to cognitive work. So, the power law, which operates in nature law also, is accelerating because of internet, globalisation and knowledge components.”
Family-Led Businesses
Those who track India’s family-led businesses and their cost and value-consciousness, still see a great degree of promoter involvement in hiring of top talent with enough scope for resume-building. Productivity and merit-based compensation tends to play a role but then salaries are also linked to practices of honouring legacy employees. The value is given here beyond the employee loyalty but to their tacit knowledge and history of the company – ready and equipped with minute details and inputs on what specific projects and the nuances that played out in their success and failure. The needle has shifted with the next generation in the family-led businesses and there is emphasis more on merit but still some of the traditional values are factors considered in retaining and rewarding talent.
Manufacturing versus Services
There is yet another dimension- the employment elasticity. Sabharwal finds, “the employment elasticity of manufacturing coming down.” Others seem to agree. Sharing his expectations from the upcoming Union budget in February, Kris Gopalakrishnan, philanthropist, basic researching-backing co-founder of Infosys, feels in times of robots and industrial automation, it is crucial to support the manufacturing sector but more for strategic reasons than for job-creation.
Sabharwal says, “we are moving away from the general distribution, which was the notion of how income and wealth get distributed to a power law even in income, wealth and productivity.” This, to him, has been happening since the industrial revolution but has got accelerated with the information revolution.
“As long as the farm employment of India is 42 per cent of the labour force, wages will not go up.” Backing his thought with the work by celebrated Economist Arthur Lewis, who got his noble prize for his work on farm to non-farm transition (transfer of labour from traditional to modern capitalist sector), Sabharwal says, “wages do not go up till you run out of excess farm labour. Since 1991 reforms, China has moved ahead in moving labour from farm to non-farm but India has added the number of people on farms with non-farm job creation not happening at the rate at which it should have happened.”
But consider the discussion around how India is moving ahead on infrastructure, skills and finance, he feels, “they are much better and have moved from being a dagger in the heart to a thorn in the flesh with the binding constraint now being only the regulatory cholesterol.”
Employed Poverty
The employed poverty, to Sabharwal, “is just a child of lack of non-farm job creation. Employed poverty has always existed in agriculture.”
At a very broad level, the two shock absorbers of India’s labour market have been agriculture and self-employment, with elements of self-exploitation blending in with farm employment. However, now, says Sabharwal, “the younger generation’s aspirations are higher and they are not willing for self-exploitation and want decent jobs. So, as much as it is lack of jobs or skills or productivity of employers, it also reflects a higher aspiration of the next generation of Indians, who are not willing for self-exploitation.”
The current debate, to him, is also partly linked to the rising youth expectations and therefore, “you are hearing the noise because those expectations have not been met because of non-creation of enough non-farm jobs.”
