Why is the GDP of 1.3 billion Indians less than that of 126 million Japanese, 83 million Germans and 40 million people in California? Why is India's GDP 20 per cent of China's, when they were equal in 1991? Why did the world's largest democracy - created on the infertile soil of the world's most hierarchical society - not create the world's largest economy? Only because of the low productivity of our government, cities, sectors, firms, which translates into our people. And all of it manifests in our low wages (US is No. 1 democracy with per capita GDP of $55,100, India is No. 2 democracy with per capita GDP of $1,886). At TeamLease, we have had a real-time view of dramatic wage transformation over the past 15 years fuelled by growing formalisation, urbanisation, financialisaton, industrialisation and human capital. And when we look ahead towards 2020, we would like to focus on the three forces that will drive the future of wages.
Skills vs Wages
Globally, there seems to be a phenomenon called wage stagnation. In many developed economies, the bottom 87 per cent workers are earning wages that are the same or lower than they were in 2007. However, if we look back at the last two fiscals in India, wages grew by a minimum of 10 per cent and a maximum of 15.37 per cent in nine sectors in 2017/18 and a minimum of 10.02 per cent and a maximum of 11.11 per cent in eight sectors. The median wage growth was 11.46 per cent in 2018 and 10.95 per cent in 2019.
The analytics-based approach to determine pay actions has only got more pervasive - employers are doubling down on rewarding sought-after skills and hot jobs. The job market has tightened its belt on mediocrity and is putting its money on the jobs and skills of tomorrow. We expect wage growth to moderate around the trend followed in the last two fiscals for 2020. A couple of global reports are projecting wage growth of 9-10 per cent for India which, we believe, is in line with the trends we have seen in the last couple of fiscals.
Blue-collar/vocational jobs in the last three years have seen wage growth in the range of 12-25 per cent for vocations like electrician, network technician and visual merchandiser. The widening vocational demand-supply gap and poor employability after higher education are skewing wages in favour of vocational jobs. The current labour deficit in the vocational job market is expected to balloon between 41.4 and 61.4 million over next five years, implying that the trend of rising wages will continue unabated. While wages for popular vocational jobs (sought-after job profiles) have been steadily trending up for last three years, wages for "hot vocational jobs" now have a formidable lead over engineering and MBA jobs for aspirants from "long-tail" institutions.
Worldwide, on-demand economy will play a large role in the future of work and wages, though not to the extent that is often speculated. Many different reports give a variety of statistics about how the gig economy is growing - there are as many projections about the future of freelancers as there are studies and reports - but most vastly overestimate the size of this economy and its prospects. However, there is still a possibility that in the future we could all be freelancers or independent contractors, especially as the makeup of companies and entrepreneurship changes. The number of freelancers is growing (52 per cent growth in last two years), but it still doesn't pose a threat to traditional jobs. If anything, it could provide a bump to wage fluidity. In India, we have seen how the mini-resurgence of the on-demand economy (employing a minimum of 1.5 million) has impacted wages where we have seen a surge in monthly earnings of an undergraduate, with graduates hitting almost Rs 40,000-50,000 working for on-demand cab aggregators or food-tech companies. While a large part has been driven by investor euphoria in the sector and growth has been bought by throwing wages, 2020 will continue to witness unprecedented wages and benefits for those in the on-demand economy, in spite of rationality kicking in. Whether that comes at the expense of the security and predictability of full-time jobs is a matter of a different debate.
Robots & Automation
Another major factor in the future of wages is the growth of robots and automation. There seems to be fear creeping across most industries that machines will take away jobs from humans, leaving many people unemployed. Through various studies, experts have been pointing to the past as a way to understand the future: technological change like robots and machine learning hasn't affected jobs and wages in the last 15 years, and despite some reports, our rate of technological change now is the same as it has ever been. New technology isn't implemented to take away jobs but most often occurs only if it leads to cost optimisation. As automation helps organisations optimise, they can likely transition employees to new positions that come from advanced technology through upskilling and development. Changing practices and technology will have a big impact on our jobs and wages and we must avoid getting caught up in flashy arguments and instead focus on pay for the jobs we currently have and what we will get paid for similar jobs in the future. In India, while we are seeing at one of the spectrum the wage premium associated with skilled vocational job roles, at the other end, we expect to witness the growing wage premium associated with roles getting rapidly created on account of fast adoption of technology and automation. While automation will accelerate the shift in required workforce skills we have seen over the past 15 years, McKinsey research finds that the strongest growth in demand will be for technological skills, the smallest category today, which will rise by 55 per cent and by 2030 will represent 17 per cent of hours worked, up from 11 per cent in 2016. This surge will affect demand for basic digital skills as well as advanced technological skills such as programming. Demand for social and emotional skills such as leadership and managing others will rise by 24 per cent to 22 per cent of hours worked. Demand for higher cognitive skills will grow moderately overall, but will rise sharply for some of these skills, especially creativity. The impact on wages for different job profiles could be greater polarisation even than today, with people who carry out non-repetitive, digital work seeing above average wages, while pay for repetitive, non-digital jobs might be below average.
Thinking about the future of work and wages needs being mindful of presentism and context. Presentism is a belief that today's circumstances are so unique, different and special that no generation has ever faced them before. This is almost never true. Context is important; actions to prevent people from falling into poverty are completely different from actions needed to pull people out of poverty. Ten thousand dollars is a lot of money depending on which side you are coming at it from. India's economic challenges of today are real, but it may be unfair to believe that we are heading to the ICU; this short-term pain will lead to long-term gain. Cultural explanations for India's poverty were always the soft bigotry of low expectations at best and racism at worst. India's economic tragedy since 1947 has been that our capital was handicapped without labour and our labour was handicapped without capital. This is changing. The future of work and wages in India is now brighter than it has ever been.
Manish Sabharwal is Chairman & Rituparna Chakraborty is Co-founder of TeamLease Services