Central Idea

Rural real wage growth is a crucial indicator of the well-being of individuals, particularly the poor, in India. Jean Dreze, a respected economist claims that rural real wage growth in India has been sluggish despite rapid economic growth. However as per Surjit Bhalla another economist, Dreze’s findings are based on weak statistical analysis and incomplete data. Surjit Bhalla’s and presents his own findings, which suggest higher wage growth rates for construction workers, non-agricultural laborers, and agricultural laborers.

Contrast results for instance

For construction workers, Dreze obtains a rate of growth (CAGR) of just 0.2 per cent (actually 0.15 per cent); However, CAGR stands at eight times larger at 1.2 per cent.
For non-agricultural labourers (porters and loaders) the same yawning divergence: Dreze obtains 0.3 per cent, whereas it stands 1.2 per cent, and for agricultural labourers, 0.9 per cent vs 1.5 per cent.

CAGR stands for Compound Annual Growth Rate. It is a measure used to calculate the average growth rate of an investment over a certain period of time, assuming that the investment has grown at a steady rate each year.
It takes into account the effect of compounding, which means that the investment’s growth in one year is added to the base value of the investment, and the total amount is then used to calculate growth for the next year.
CAGR is often used in finance to compare the performance of different investments or to forecast future growth.

Differences in Method of Estimation: Dreze uses semi-log regression on eight observations to estimate the compound annual growth rate (CAGR) for each of three male occupations. His estimate of CAGR is not even significant at the 11 per cent level of confidence for two of these occupations – construction and non-agricultural laborers. Dreze does not uses a population-weighted average of year-on-year growth for each of the 38 sex-occupation categories to estimate CAGR accurately.
Differences in Time Period of Analysis: Surjit Bhalla also criticizes Dreze’s chosen time period of analysis, 2014-2021. As per Surjit Bhalla, that no study combines pre-Covid and Covid years without even a mention of the difference. Surjit Bhalla presents data for three time periods, including the normal 2014-2018, Covid 2019-2021, and all years 2014-2021.

Poverty alleviation: Rural wage data is used to determine the poverty levels in a country, and accurate data is essential for effective poverty alleviation policies.
Income inequality: Accurate rural wage data can help policymakers understand the level of income inequality in rural areas and design policies to reduce it.
Agricultural productivity: Rural wage data is used to assess the productivity of the agricultural sector, which is a key source of income for rural households.
Labor market trends: Accurate rural wage data helps policymakers understand the trends in the rural labor market, such as changes in demand for different types of labor, and design policies to support employment growth.
Minimum wage determination: Accurate rural wage data is necessary for determining minimum wages for rural workers, which is important for protecting the rights of workers and reducing labor exploitation.
Social protection: Rural wage data is used to design social protection programs such as cash transfers, food subsidies, and public works programs to support the poorest households in rural areas.
Macro-economic policy: Rural wage data is used to inform macro-economic policies such as inflation targeting and monetary policy, as well as to evaluate the effectiveness of such policies on rural households.

The issue of rural real wage growth in India is complex and requires a nuanced understanding of data selection, treatment, intensity, and estimation. There is need for a more comprehensive set of data and a different method of estimation.

Mains Question

Q. What is Compound Annual Growth Rate (CAGR). Why do you think, accurate rural wage data is so important?