This paper develops a case study to look at the performance of real wage scenario of the construction industry which will further help to gauge the state of real wages (earning Rs200-400 per day) in other small and large industries of the economy where industrial workers work on daily wages (lower-income strata). Because of scarcity of data, only available on Economic Survey of Pakistan wage rates of masons, carpenters and general labours will be used to run the analysis.
For the last 13 years, food inflation has been rising on an average rate of 6.29 per cent per year, registering the lowest rate of 2.1 per cent in 1999-2000 and highest 14 per cent in 04/05. Swings in food inflation rates, are mainly attributed to demand-supply shocks. It is said that formation of cartels in the supply chain of food items and the nature have been the main causes in the supply shocks. On the demand side, population explosion has been the main factor.
However, policymakers sitting in Islamabad seem always praying for nature’s blessing for the growth in agriculture sector to contain food inflation. No serious efforts have been made for increasing productivity of the agriculture sector.
Methodology: To measure real wages (real buying power), current wages are converted to constant base year prices (2000-01), taking out the effect of food inflation. This is being done by taking the average of nominal wages of carpenters, masons and labourers (unskilled) measured in Islamabad, Karachi, Lahore, Peshawar and Quetta, and dividing it into the food inflation index. Here, food inflation index is used as a price deflator as the coverage of Consumer Price Index (CPI) comprised of over 300 items would not truly demonstrate the changes in real buying power of wages of construction industry workers or daily wage earners in other sectors of the economy.
Some of the items included in the basket of CPI simply do not belong to the workers under this study. Also this analysis is being undertaken in the backdrop of comments made by the researchers that poor/daily wage earners i.e., lower segments of society have been badly hit by the rise in food items prices.
Analysis: Nominal wages have been rising modestly for workers (see Figure I), however, there was a sharp upward turn in the nominal wages after the year 2003, particularly for unskilled labourers. In contrast to that, however, real wages remained stagnant or fell, for most of 13 years period (1993-06 (July-March)) showing shrinking purchasing power for all three classes.
If, in fact, this was the case then it can easily be attributed that some of the food items, such as, meat, chicken, pulses, eggs, vegetables, etc., went out of the reach of these workers or they were forced to consume inferior quality food items. This might have lead to increasing malnutrition problems causing further strain on their limited resources. However, recently, the construction industry bounced back and the real wages broke the inertia (see Figure II). It is interesting to note that the real wage increase, after 2003, for unskilled labour was faster than the rest of the two.
When nominal wages were rising and real wages were stagnant the growth in both wages was in contrast to each other (see Figure III & IV). The growth in real wages during the period 1994-2003 remained negative with wide swings in the wage growth of general labour. Period 2003-06 brought somewhat good news for the earners and finally the industry saw a turnaround in the growth patterns for all three classes. The greater increase in the wages of unskilled labourers, after year 2003, demonstrated increasing demand of unskilled labours and also reflects that the supply of unskilled labourers started falling short of demand. The construction industry grew by 18.6 per cent and 9.2 per cent during 2004/05 and 2005/06 (July-March) and surprisingly registered a negative growth rate 10.7 per cent in 2003/04 when actually the real wages started climbing.
Carpenters’ aggregate real wage growth since 1993 was close to zero, masons 7.39 per cent and labourers 28.9 per cent. When growth rates in wages are compared with food inflation which increased by 82 per cent during 1993-2006 period, it can be concluded that the daily wage earners in the last two decades have been struggling to maintain their buying power even for food items, what to talk about other necessities of life.
The Development of Analysis Research Team (DART) of a Consultancy firm based in Islamabad conducted a detailed study on the minimum cost of living required for a person to maintain a modest standard of living. According to the study, one family of four and elderly parents living together will likely require at least Rs15,500 per month to pay rent Rs4,500, utilities Rs2,000, Rs2,000 for children’s education (government school), transport Rs1,000, food and kitchen Rs5,000, clothing Rs400, medicines Rs400, and laundry Rs200. Whereas the government in the current budget 2007-08 suggested a minimum wage of Rs4,600.
The current study calculated average carpenters’ nominal wages in the year 2006 (July-March) at Rs383.6, masons Rs407.6, and labourers Rs239.2. Based on these estimates their monthly income (26 working days/month) turned out to be Rs9,973.6, Rs10,597.6 and Rs6,219.6, respectively. It should be noted here that their monthly income is not guaranteed which largely depends upon the stream of work coming in every day. Some days are gone without having any work and earnings and most of the lower income strata have to feed large size family (average 7-10 persons) and belong to homeless strata.
Conclusion: Average earning estimates seem to be quite impressive when compared with the government’s minimum wage limit but these still have to catch up DART estimates of minimum income required. What does this lead to conclude? Yes, most of the daily wage earners and other lower-income strata of society have been living on either borrowing (dissavings) or unable to feed their families properly or both-which rings the alarm despite the robust economic growth.
The trickle down effect of the growth (6-8 per cent) has yet to be passed on to the masses. Raising minimum wage rate, by the government, to Rs15,500 will surely add to the already high costs of production and might result in cost push inflation. Therefore in order to give relief to the lower-income strata in particular and shrinking buying power of middle class of the economy in general, the drivers of the private and public economy must focus on stimulating the supply of food items by increasing the productivity of the agriculture sector. This will require long strong commitment on the part of all stakeholders who are committed to the cause.
(The writer is Deputy Director SZABIST, Islamabad campus. Views expressed in the article do not necessarily reflect the views of the employer.)