India’s wage problem: It's not about more jobs, it’s about better ones

At the recent 2024 ET Awards jury meeting, jury chairman Mukesh Ambani said he believed that 'India doesn't have a jobs problem, it has a wage problem'. We agree. And it needs fixing. It requires a layered approach, as opposed to merely creating new jobs. Of course, a large volume of low-skilled jobs is part of the solution to the median salary level. But this has to be accompanied by investment in infra and innovation that generates more lucrative employment. The pace of urbanisation, which has a bearing on high-skilled job creation, is a contributing factor, as is the degree of formalisation of the economy. All of these must coalesce to correct the situation of lower rural wages despite higher labour force participation relative to urban clusters.

Infra and urbanisation reinforce each other while contributing to formalisation of economic processes. Innovation is exogenous to these complementary forces. Yet, it, too, has its own clustering effects. Consider a labour-intensive manufacturing base in the hinterland feeding export markets through world-class logistics chains to its coastal cities that are research hubs in areas such as AI and energy transition. It would be a picture of what India could be in the next three decades. And it would have addressed in large measure the wage problem. But this picture will not be complete unless people are brought to jobs, instead of the other way round.

Cities like Mumbai and Bengaluru have acquired their standards of living by creating jobs for a broad range of workforce skills. The employment opportunity they offer is tiny in relation to the labour supply. Scaling their wage achievements to the national level would require investment in workforce skilling that allows high-income employment to disperse. The ratio of tertiary job-seekers in the workforce has to climb significantly for more urban clusters to be able to sustain wages above the median level. The funnel can be broadened by paying attention to education outcomes at the primary level, which has the biggest falloff.