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Higher exports widen wage inequalities in India, say World Bank and ILO

‘They won’t solve country’s problem of jobless growth without policy changes’
An increase in exports can lead to higher wages, mostly for educated and urban workers, and speed a move 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 report released on Thursday.
To ensure that the gains from higher exports benefit a wider population, policy changes were needed, wrote the authors of the report titled ‘Exports to Jobs: Boosting the Gains from Trade in South Asia’. The report assessed the efficacy of increased exports in dealing with the phenomenon of jobless growth, whereby the labour market has not kept pace with the region’s high 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,” they 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’s authors observed that there were 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,” they wrote.
However, higher exports did not correlate with higher aggregate employment of local labour markets, they cautioned. While an increase in labour demand might change the mix between formal and informal sector populations, it would not increase 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.
To spread the gains from exports more widely, the authors suggested policy changes.
“An increase in labour-intensive (as opposed to capital-intensive) production is likely to have a broader impact on the wages of workers across all educational backgrounds, even those in rural areas,” they opined. Greater participation of women and youth in export industries by providing targeted skilling opportunities could also help, they added.