Trends in Real Wages in Rural India, 1880-1980

Type Report
Title Trends in Real Wages in Rural India, 1880-1980
Publication (Day/Month/Year) 1984
Publisher Development Research Department, Economics and Research Staff, World Bank
This paper charts long-term trends (over a century at the All India level) in rural real wages, which can be derived from available administrative statistics on rural wages, to see if the conclusions of an earlier study (Lal, 1976) based solely on National Sample Survey data (for the post 1950 period) concerning a positive association between trends in rural real wages and in the changing balance between the demand and supply of rural labour, are upheld. A real rural wage series for a century is derived, and used with time series data on labour supply and agricultural output to estimate a simple neoclassical model of wage determination for the whole 1880-1980 period and for three sub-periods. It is found that some mild support is provided, particularly for the pre 1914 and post 1950's period for a -- classical mode) of rural wage determination. The paper also summarises the results from other studies concerning the post Independence performance of rural real wages, which also support the "neo-classical" model of wage determination as a
working hypothesis. The paper lends support to the view that, given the likely future growth in the rural labour force, raising the demand for labour remains the single most important means for alleViating rural poverty. The paper's estimate of the increase in the rate of growth of agricultural output in the post Independence period to 2.4% p.a. over its long-term trend of just under 1% p.a., has not been spectacular in relation to the growth in rural labour supply (of about 2% p.a.). Hence, there has been no acceleration of the rate of growth of rural real wages in the post Independence period over the long-run trend rate of under half a percent per annum, and hence it would be unrealistic to expett any significant reduction in the extent of Indian rural poverty. But to the extent that the supply of rural labour is also influenced by the absorption of labour in industry, it is the failure of modern Indian industry to markedly increase its demand for labour despite high growth rates of investment which must also be assigned a major role in the limited poverty redressal in India.

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