There are no poor people, only people in poor places

Source: The post is based on an article “There are no poor people, only people in poor places” published in The Indian Express on 8^th October 2022.

Syllabus: GS 2gs paper 2

Relevance: problems with different wages across India and ways to improve it.

News: India has differences in wages for the same amount of work. For example, an electrician moving from Kanpur to Bangalore gets three times more salary.

The country’s wage differentials reflect massive productivity differences across five areas — states, cities, sectors, firms, and skills.

How will country’s wage differences create productivity differences and what needs to be done?

States

Problems: Six states in South and West India in the next 20 years will account for almost 35 per cent of GDP growth but only 5 per cent of population growth. It is also expected that due to ageing population there will be more deaths than births. This will create wage inequalities across states.

Solution: Therefore, states that provide proper labour laws will attract more high-paying jobs.

Cities

Problems: Hyderabad has a higher GDP than Odisha and four times that of J&K. One of the reasons for low paying cities is the incapable district magistrates. They are unelected, inexperienced, and unempowered for the complex trade-offs needed for well-paying jobs.

Solutions: Cities that can create a divergence between nominal wages (what employers care about) and real wages (what employees care about) will attract high-paying jobs.

Sectors

Problems:  Software sector employs only 0.8 per cent of our labour force but generates 8 per cent of GDP while agriculture has 42 per cent of our labour force but generates only 16 per cent of GDP.

Solution: States that increase manufacturing and service sector jobs and move away their labour from agriculture will have more high-paying jobs. For example, China raised its per capita income 80 times in 40 years by moving 700 million people from farm to non-farm employment.

Firms

Problems: The pre-1991 unfair labour market advantage of multinationals no longer exists as Indian firms have also come up in the competition. But the problem is that out of 6.3 crore enterprises only 23,500 are proper companies. The largest and smallest manufacturing companies have a 24 times difference in productivity.

Solution: Therefore, states that replace rules by reducing regulatory mechanism will attract high-paying jobs.

Skills

Problems: It is impossible to predict wages as people have gained different skills at a young age. Wages are higher for using minds than muscles.

Solution: Therefore, states with high populations of residents with skills in demand will attract more high-paying jobs.

What can be done to reduce wage differences across states?

First, there is a need to empower local bodies and mayors by devolution of funds, functions, and functionaries.

Second, the enrollment in government schools should be raised by 45 percent.

Third, workers should be provided with skills in advance for the upcoming technologies. This will create supply and attract demand.

Fourth, there is also a need to bring reforms in agriculture (prices and distribution), proper and affordable power generation should be provided along with reliable public transport.

Fifth, there should be formalization by employing proper HR in civil services. This will reduce the burden on the state.

Sixth, there is a need to set a 12-month target for paperless and cashless for all citizen interfaces by leveraging India’s unique stack of digital public goods.