Coming Soon: Labour shortages

There are numerous articles why rural wage growth has been falling.

One big factor is Inflation. This RBI article analyses this in great detail.

The other factor is MSP support. This article analysis MSP impact

There are many other reasons including excess agriculture production, mechanisation and so on.

Now, let us look at this chart

What does this chart say?

This chart is for Rural India. It shows that we are close to peak population as far as 18 to 20 year olds is concerned. Essentially, over the last 10 years, every year we have been adding more people to the workforce than the previous year. This has peaked around now. However, over the next 10 years, every year, the rural population in the age band 18 to 20 years is falling reaching 2010 levels in 2027.

If you remove inflation and MSPs, this demographic bulge/ dividend is an important factor that is contributing to slowing rural wages.

Why will wages go up if every year, we keep having a higher supply of labour than the previous year?

We have had an increasing numbers of people in the working age (18 to 20 year olds) over the last 50 years given the high fertility rates in the past. However, this has just about peaked. Here on, every year, we will have fewer people entering the workforce (atleast as far as rural labour is concerned) than the previous year. It is likely that lesser supply will in itself create better wages for rural population. Whether this will start next year or 2-3 years from now is a matter of debate but we are close to the point.

With increased school attendance also in the mix, it is likely that we are close to the point where labour wages will start growing as fast as GDP growth (or atleast better than previous years). The slowdown in supply will enable less educated folks in India to truly gain from economic growth, something that has been a struggle over the last 30 years of Liberalisation.

Population data is from the Census