44% of those employed in organized manufacturing on contract: Reason for slow 1.7% per annum wage rise

Even as claiming that between 2000 and 2015, real wages in India grew in every sector, including in agriculture and in unorganised manufacturing and services, at the compounded annual growth rate (CAGR) of roughly 3 per cent, a recent study finds a variation across sectors: Thus, from 2010 to 2015, real wages grew faster, at a CAGR of 4 per cent for unorganised manufacturing, 5 per cent for unorganised services, and 7 per cent for agriculture.
Titled “State of Working India 2018”, carried out by the Centre for Sustainable Empoyment at the Azim Premji University, Bengalaru, the study, however, regrets, that the “wage growth in organised manufacturing has been slower than that in the unorganised sector – at 0.8 per cent over the whole period since 1999, and 1.7 per cent in the most recent period.”
A major factor “contributing to keeping wages down in this sector is the rise in the proportion of contract workers”, the study says, adding, “Field studies reveal that contract workers are paid a fraction of permanent worker wages, often for similar work.”
In fact, according to the study, the “contract workers' wages lie somewhere between the wages of direct workers and their unorganised sector counterparts”, underlining, “The rise in the proportion of workers employed via third-party contractors, reported earlier, together with the lower wage rates for these workers, has important implications for both quality of work as well as the share of labour in value added.” 

The study states, “There is a slowdown in the replacement of workers by machines but work is becoming more precarious in the organised manufacturing sector. Number of jobs supported by one crore rupees of fixed capital in organised manufacturing has leveled at around 10. In the early 1980s, one crore rupees of real fixed capital (in 2015 prices) supported around 90 jobs in the organised manufacturing sector.”

“Contract workers are nearly 30 per cent of all workers in organised manufacturing”, the study says, adding, “Contract workers accounted for 44 per cent of the additional employment between 2000 and 2014. Firms use non-permanent workers to stay below the threshold size and thereby avoid costs attributed to larger firm size. The intensity in the use of contract workers is highest for firms in the 50-99 size group.” 

It adds, “Field studies reveal many categories of contract, trainee, and apprentice workers who perform the work of permanent workers at a fraction of their wages. This is one way in which labour laws are being circumvented by manufacturing firms.”

“For example”, the study says, “As per contract, workers have to be paid Provident Fund (PF) and gratuity. However, workers reported that the employers encouraged them to terminate their current contract and claim PF benefits just before completing five years”, a period after which the PF and graduity would become applicable.
Thus, “workers rejoin the same factory within a week or so on a new contract. This significantly reduces the labour bill for employers. The authors also found that the law mandating public holidays is being flouted. Workers are required to work on Sundays to compensate for a public holiday.”
The study further states, “Contrary to popular perception, it appears that capital intensive industries are more reliant on contract workers than labour intensive industries. Contract workers constituted 37 per cent of total workers in chemicals and 47 per cent of total workers in motor vehicles, while in textiles and apparel the corresponding figures were 20 per cent and 15 per cent respectively.”