The MGNREGA effect on wages: Financial Express 29th September 2012

RBI’s data release on average daily wage rates for men in rural areas is quite an eye opener. Besides presenting various data points that show how people live across professions and states, it also sets a different perspective on other issues relating to wages that are spoken of in debates, including the impact of MGNREGA and the poverty definition.The data provided is over eight years across different occupations and states. The occupations, agro-related and others, cover 18 distinct groups. Some of the important takeaways are the following. First, wages vary across jobs significantly depending on the level of skill that is required for the same. The non-agriculture segment provides higher wages as seen in the case of masons (R256), carpenters (R212), well diggers (R212) that contrast with weeding and picking, which paid R133 as of March 2012. The herdsman’s job is the lowest with a pay of R95 as of March 2012. Second, the growth in wages over the last eight years is fairly good, at an average of between 12% to 21%, for cobblers and winnowers, respectively. This means that the increase in wages does adequately cover inflation over the period, and that there could be a higher gain considering that CPI for agricultural workers has averaged 7.5% during this period. However, as will be discussed later, a substantial part of this increase has emanated in the last 2-3 years, ostensibly on account of MGNREGA. Third, the wage profile across states presents stark variations across these professions.Kerala has the highest wages, which can be attributed more to the higher literacy rate where there is less labour available as also the fact that farming is not a major profession in this state. Tamil Nadu, Punjab, Haryana, Himachal Pradesh and Jammu & Kashmir are the states with higher wages. Scarcity can be the factor for J&K, while the agriculture focus has pushed up wages in Haryana, Punjab and Himachal. Tamil Nadu comes as a surprise, where wages are one of the highest across professions.Andhra Pradesh, Karnataka and Rajasthan provide wages just above the country average while Tripura, Meghalaya, Manipur and Assam have wages lower than the average. This is surprising because one would have expected wages to be higher in the north-eastern states where the supply of labour would compare favourably for the agricultural jobs but falls short in the case of non-farming related professions. However, the biggest surprises are Maharashtra and Gujarat, which are clearly the most industrialised states in the country but where wages are lower than the national average. This may be attributed to the fact that these tend to be states affected by shortfalls in rainfall, which, in turn, could make labour lose some bargaining power. Madhya Pradesh has virtually the lowest wages across all the professions.Two issues that merit debate relate to MGNREGA and poverty thresholds. One of the thoughts that have been expressed often is that MGNREGA wages have actually drawn labour away from the farm sector to public works. Data shows that MGNREGA wages for April 2012 ranged between a low of R91 in Tamil Nadu to a high of R190 in Haryana. The picture is hence not too clear. But a drill down through the time series reveals quite a bit. In agriculturally-rich states like Punjab, Haryana, and to a certain extent Himachal Pradesh, there has been a spurt in agriculture-related wages after 2009, which can be linked directly to MGNREGA. For the non-farming related jobs, there has been an increase, albeit more gradual, though there is a tendency for wages to move in a contemporaneous manner. Therefore, definitely a causal link could be established between MGNREGA wages and the general level of wages. This also means that to a large extent the adjustment for inflation has come about due to the competitive wage being offered by MGNREGA. This has been good for rural labour, which has also helped to improve their consumption levels. Also, this has caused demand to grow for both food and non-food items, which will necessitate supplies to increase at a comparable pace in the future.The other issue relates to poverty. There has been adequate controversy over what constitutes a poverty mark. Based on the wage data, it looks like farm labour has a greater possibility of falling into the poverty trap even today, assuming a single worker with a family of four to support, as certain categories still earn at the national average level—less than R130/day (based on R26 criteria) and R160/day (R32 criteria). The non-farm labourers are better off in general, though again this picture varies across states. Clearly, we need to focus on bettering the wages in rural areas to ensure that living is sustainable.MGNREGA benchmarks have helped to elevate the living standards of rural families and should hence be commended. While this programme works essentially between seasons and assures employment for a fixed set of days for families, the wage benchmarks, which have risen progressively, have been useful in improving the overall wage levels. The unevenness across states needs to be corrected or else there will be a tendency for migration, which, in turn, will aggrandise the supply of labour in specific fields. This has already been witnessed in cane crushing where wages have almost doubled in the last two years in states like Tamil Nadu.Going ahead, we can expect wages to move in line with inflation-adjusted MGNREGA wages, which will help to improve standards of living as well as reduce the inequality in incomes. This will help to reduce the incentive to migrate to urban areas, which will be useful for the rural economy.