Higher exports widen wage inequalities in India, says World Bank

A rise in exports could lead to higher wages in India, mostly for educated and urban workers, and accelerate a shift from casual to formal sector jobs. However, it would also lead to greater wage inequalities and would not actually grow the total labour market, the World Bank (WB) and the International Labour Organisation (ILO) said in a recent report.

The report, titled ‘Exports to Jobs: Boosting the Gains from Trade in South Asia’, suggested policy changes to ensure that the gains from higher exports benefit a wider population.

It assessed the efficacy of increased exports in dealing with jobless growth, whereby the labour market has not kept pace with the region’s high gross domestic product (GDP) growth.

A fresh econometric analysis proved that higher exports went hand-in-hand with higher wages.

“If the value of India’s exports increases by $100 per worker, average annual wages would increase by ₹572 per worker,” the report estimated. However, the wage improvement was larger for college graduates and urban workers; men benefited slightly more than women; and rural workers and less-educated workers did not benefit. Thus, higher exports also led to higher wage inequalities.

The report noted some benefits for lower-skilled workers in terms of the formalisation of jobs. “Increased exports can explain the conversion of about 8,00,000 jobs from informal to formal between 1999 and 2011, representing 0.8% of the labour force,” it said.

However, higher exports did not correlate with higher aggregate employment of local labour markets, it cautioned.

While an increase in labour demand might change the mix between formal and informal sector populations, it would not raise the actual size of the local labour market, mostly because of the cost of moving and the lack of unemployment insurance or any other form of income support, the report added.