Labour Cost Is One of the Most Significant Instruments for Assessing the Economic Viability

CHAPTER-V

LABOUR COST

Labour cost is one of the most significant instruments for assessing the economic viability of any industrial activity for an entrepreneur before venturing into the industrial field. It provides vital information in regard to the extent of expenditure incurred by entrepreneurs on labour welfare and social security aspects, in addition to wages/salaries paid to them which adequately equips the fresher in choosing the suitable field and proper area as also in planning the industrial project and its proper manoeuvreance. Further, it also helps in (a) reliable costing, (b) wage fixation on a realistic basis, (c) logical collective bargaining, (d) evolving, implementation and evaluation of welfare measures, (e) study of trends over a period of time, (f) location of industry and the like. Labour Cost data are also important for policy formulation at the national and regional levels. With this end in view, data on various aspects of labour cost are collected every year which, inter-alia, include the expenses incurred by the industrial establishments on account of wages/salaries to their employees, bonus (profit sharing bonus, festival bonus, etc.), contributions to provident and other funds and workmen and staff welfare expenses in respect of all employees employed directly or through contractors. The aggregate of these components add up to the labour cost. When used in conjunction with the number of mandays worked, this gives the average labour cost per manday worked.

5.1Average Labour Cost

State-wise and Industry-wise data on average Labour Cost per manday worked for all employees during the year 2005-06 are given in Tables 5.1.1 and 5.1.2, respectively. The Tables reveals that at All India level, the average labour cost per manday worked in respect of all employees was recorded at Rs. 323.64. Component wise, the employers, on an average for each manday worked by an average employee, spent Rs. 255.94 on wages/salaries, Rs. 14.09 on bonus, Rs. 31.28 as a contribution towards the employees’ provident and other funds and Rs. 22.33 towards workmen and staff welfare expenses. The average labour cost per manday worked in manufacturing industries belonging to the Public Sector was Rs. 648.93 as compared to Rs. 468.06 in the Joint Sector and Rs. 306.58 in the Private Sector.

5.2Average Labour Cost by States

Table 5.1.1 reveals that the highest average labour cost per manday worked in respect of all employees was reported at Rs. 558.73 in Jharkhand, followed by Rs. 497.65 in Chhattisgarh and Rs. 472.62 in Maharashtra. The lowest average labour cost per manday worked in respect of all employees was reported at Rs. 91.78 in Manipur, followed by Rs. 107.00 in Tripura and Rs. 140.68 in Nagaland.

5.3Average Labour Cost by Industries

Industry-wise data presented in Table 5.1.2 reflects exceptionally very high labour cost per manday worked at Rs. 1189.58 in the industry group ‘353-Manufacture of aircraft and spacecraft’, followed by industry groups ‘341-Manufacture of motor vehicles’ (Rs. 973.33) and ‘232-Manufacture of refined petroleum products’ (Rs.967.26). The lowest average labour cost per manday worked was reported at Rs. 87.87 in the industry group ‘160-Manufacture of tobacco products’, which incidentally happens to be one of the high employment generating industries. Other industry groups having reported low labour cost were ‘201-Saw milling and planing of wood’ (Rs. 110.31) and ‘014-Agricultural and animal husbandry service activities, except veterinary activities’ (Rs. 116.64).

5.4Percentage of Components of Labour Cost

State-wise and Industry-wise break up of proportion of various components of labour cost on employee, viz., (i) wages/salaries; (ii) bonus; (iii) contribution to provident and other funds, and (iv) workmen and staff welfare expenses, to total labour cost on employees has been depicted in Tables 5.2.1 and 5.2.2, respectively.

At the All India level, the total Labour Cost on Employees stood at Rs. 8836334 lakhs. The share of different components of labour cost to Total Labour Cost worked out to be 79.08 per cent on wages/salaries, 4.35 per cent on bonus, 9.66 per cent on provident and other funds and 6.90 per cent towards staff welfare expenses. Across the States, the share of wages/salaries in the labour cost was highest at 95.44 per cent in Manipurfollowed by Andaman & Nicobar Islands with 88.02 per cent. The share of wages/salaries in the labour cost was the lowest at 74.62 per cent in Assam followed by Kerala (74.71 per cent).

The contribution of bonus to total labour cost was 6 per cent or more in Assam, Kerala and Tamil Nadu and less than 2 per cent in Manipur, Orissa and Chhattisgarh. The proportion of provident and other funds in total labour cost was highest (14.58 per cent) in Chhattisgarh whereas the lowest (1.85 per cent) was reported in Manipur. The highest proportion of staff welfare expenses in total labour cost was reported (12.16 per cent) in Nagaland and the lowest (2.00 per cent) in Manipur.

In majority of the industry groups, the proportion of wages/salaries to total labour cost was reported to be between 70 to 90 per cent. Three industry groups, viz., ‘014-Agricultural and animal husbandry service activities, except veterinary activities’, ‘142-Mining and quarrying n.e.c.’ and ‘201-Saw milling and planing of wood’ reported more than 90 per cent of the share of wages/salaries to the total labour cost, whereas one industry groups, viz., ‘182-Dresssing and dyeing of fur,manufacture of articles of fur’ recorded less than 70 per cent share of salaries/wages to total labour cost.

The contribution of bonus in the total labour cost was highest at 6.66 per cent in the industry group ‘191–Tanning and dressing of leather, manufacture of luggage handbags, saddlery & harness’ and the lowest share of 1.90 per cent was recorded in industry group ‘351-Building and repair of ships and boats’. The percentage contribution of provident and other funds to total labour cost was highest at 12.28 per cent in industry group ‘271–Manufacture of basic iron and steel’ and the lowest at 2.75 per cent in industry group ‘014-Agricultural and animal husbandry service activities, except veterinary activities’. The share of staff welfare expenses in total labour cost was highest at 27.79 per cent in industry group ‘182-Dressing and dyeing of fur, manufacture of articles of fur’ and the lowest at 1.19 per cent in industry group '014-Agricultural and animal husbandry service activities, except veterinary activities’.

5.5Percentage of Labour Cost to Total Cost of Production

Labour cost is one of the important components of the total cost of production in any industrial establishment. The percentage of labour cost on employees to total cost of production indicates the contribution made by labour in the economy of the country. In rapidly changing scenario of world economy in terms of liberalisation, privatisation, globalisation and modernisation, the percentage share of labour cost to total cost of production is bound to change unambiguously over a period of time. The time series data on the percentage of labour cost to total cost of production may be of immense use in overall economic planning, adoption of labour policies and programmes. With this end in view, State-wise and Industry-wise data on percentage share of labour cost to total cost of production in different sectors have been collected and presented in Tables 5.3.1 and 5.3.2, respectively.

Table 5.3.1 reveals that at all India level, labour cost constituted 5.75 per cent of the total cost of production during the year 2005-06. The proportion of labour cost to total cost of production was 6.61 per cent in the Public Sector, 5.02 per cent in the Joint Sector and 5.77 per cent in the Private Sector.

Among States, the highest proportion of labour cost on employees to total cost of production was reported in Manipur at 13.67 per cent followed by Nagaland at 12.30 per cent, Chandigarh at 10.00 per cent, Tripura at 9.45 per cent and Jharkhand at 9.03 per cent. On the other hand, the lowest percentage of labour cost to total cost of production was reported in Dadra & Nagar Haveli (1.84 per cent).

In the Public Sector, the percentage of labour cost to total cost of production was more than 10 per cent in 17 States/Union Territories, whereas it was less than 5 per cent in only 5 States/UTs. In the Joint Sector, the percentage of labour cost was recorded to be more than 10 per cent in 10 States/Union Territories, whereas it was less than 5 per cent in 9 States/Union Territories. In the Private Sector, the percentage of labour cost was recorded between 5 to 10 per cent in 19 States/Union Territories, whereas it was less than 5 per cent in 10 States/Union Territories and more than 10 per cent in only two State i.e. Nagaland and Manipur.

Industry-wise and Sector-wise percentage of labour cost to total cost of production is presented in Table 5.3.2. The proportion of labour cost to total cost of production was recorded to be highest at 29.64 per cent in industry group ‘353-Manufacture of aircraft and spacecraft’ followed by ‘142-Mining and quarrying, n.e.c.’ with 19.47 per cent. The lowest proportion of 0.75 per cent was reported in industry group ‘232-Manufacture of refined petroleum products’ followed by the industry groups, ‘151-Production, processing & preservation of meat, fish, fruit, vegetables, oils and fats’ (1.95 per cent) and ‘014-Agriculture and animal husbandry service activities, except veterinary activities’ (2.14 per cent). The percentage of labour cost to total cost of production was reported to be more than 20 per cent in only one industry group, between 10 to 20 per cent in 17 industry groups, between 5 to 10 per cent in 33 industry groups and less than 5 per cent in 12 industry groups.

In the Public Sector, the percentage of labour cost to total cost of production was more than 20 per cent in 22 industry groups, whereas it was less than 5 per cent in 3 industry groups. In the Joint Sector, the percentage of labour cost was recorded to be more than 20 per cent in 10 industry groups whereas it was less than 5 per cent in 7 industry groups. In the Private Sector, the percentage of labour cost was recorded less than 5 per cent in 13 industry groups, between 5 to 10 per cent in 35 industry groups, between 10 to 20 per cent in 14 industry groups and more than 20 per cent in only one industry group. It has been observed that the percentage of labour cost to total cost of production was on the higher side in the Public and the Joint Sectors, whereas it was on the lower side in the Private Sector establishments in majority of the industry groups.

5.6Wages/Salaries

State-wise and Industry-wise data on wages/salaries component of labour cost per manday worked are presented in Tables 5.4.1 and 5.4.2, respectively. The Tables reveal that at all India level, labour cost on account of the wages/salaries per manday worked were Rs. 174.73 for all workers and Rs. 255.94 for all employees taken together, Rs. 219.68 for men, Rs. 99.59 for women, Rs. 25.54 for child workers and Rs. 116.40 for contract workers, The wages/salaries per manday worked for all employees was the highest at Rs. 487.49 in the Public Sector followed by Rs. 356.56 in the Joint Sector and Rs.243.91 in the Private Sector.

The States/Union Territories, wherein wages/salaries paid to its employees was more than Rs. 300, were Jharkhand, Chhattisgarh, Maharashtra, Goa, Chandigarh, Uttaranchal and Haryana. The highest wages/salaries per manday paid to all workers was reported in Jharkhand at Rs. 333.57, followed by Goa (Rs. 253.23) and Maharashtra (Rs. 242.92). Among male workers, the highest wages/salaries per manday worked was reported at Rs. 362.90 in Jharkhand and the lowest at Rs. 80.78 in Manipur. Among women workers, the highest and lowest wages/salaries per manday worked was reported at Rs. 268.55 in Jharkhand and Rs. 62.86 in Manipur, respectively. For contract workers, wages/salaries per manday worked was found to be highest at Rs. 179.68 in Goa and lowest at Rs. 65.74 in Tripura.

It has been observed that the wages/salaries per manday worked was generally recorded to be the lowest in the North-Eastern States/Union Territories for all categories of employees. Under the category of directly employed workers, the wages/salaries per mandays worked of women workers was reported to be more than that of their male counterparts in Chandigarh only.

Among Industries, the main components of labour cost viz. wages/ salaries paid per manday worked to all workers was reported to be the highest at Rs. 840.32 in industry group ‘353–Manufacture of aircraft and spacecraft’ followed by industry groups ‘232-Manufacture of refined petroleum products’ (Rs. 512.75) and ‘341-Manufacture of motor vehicles’ (Rs. 477.24), whereas it was lowest at Rs. 61.21 in industry group ‘160-Manufacture of tobacco products’, followed by industry groups ‘201-Saw milling and planing of wood’ (Rs.85.48) and ‘014-Agricultural and animal husbandry service activities, except veterinary activities’ (Rs. 91.28).

The highest wages/salaries paid per manday worked to women workers was reported at Rs. 607.34 in industry group ‘232-Manufacture of refined petroleum products’ followed by industry groups, ‘353–Manufacture of aircraft and spacecraft’ (Rs.598.05) and ‘272-Manufacture of basic precious and non-ferrous metals’ (Rs. 519.82), whereas it was lowest at Rs. 55.75 in industry group ‘160-Manufacture of tobacco products’ followed by industry groups ‘201-Saw milling and planing of wood’ (Rs. 58.47), ‘372-Recycling of non-metal waste and scrap’ (Rs. 64.94), ‘371-Recycling of metal waste and scrap’ (Rs. 66.59), ‘153-Manufacture of grain mill products, starches and starch products, and prepared animal feeds’ (Rs. 70.18), ‘154-Manufacture of other food products’ (Rs. 73.03) and ‘014-Agricultural and animal husbandry service activities, except veterinary activities’ (Rs. 73.78).

The average wages/salaries paid per mandays worked to women workers was higher than that of their male counterparts in 5 industries groups, viz., ‘182-Dressing and dyeing of fur, manufacture of articles of fur’, ‘231-Manufacture of coke oven products’, ‘271-Manufacture of basic iron and steel’, ‘272-Manufacture of basic precious and non-ferrous metals’ and ‘323-Manufacture of television and radio receivers, sound or video recording or reproducing apparatus and associated goods’.

5.7Average Daily Earnings

The average daily earnings have been defined as the wages/salaries per manday paid for. State-wise and industry-wise statistics on average daily earnings of workers during the year 2005-06 are presented in Tables 5.5.1 and 5.5.2, respectively. The Tables show that at all India level, the average daily earnings were recorded to be Rs. 195.28 for men, Rs. 91.79 for women, Rs. 25.54 for children, Rs. 114.88 for contract workers, Rs. 160.56 for all workers and Rs. 229.99 for all employees. At all India level, the average daily earnings by workers were reported at Rs. 346.28 in the Public Sector, Rs. 232.93 in the Joint Sector and Rs. 151.46 in the Private Sector.

The highest amount of average daily earnings for male workers was reported at Rs. 346.14 in Jharkhand and the lowest at Rs. 80.34 in Manipur. The average daily earnings for women workers were the highest at Rs. 255.27 in Jharkhand, whereas it was reported to be lowest at Rs. 62.76 in Manipur. Among all the State/Union Territories, the average daily earnings of contract workers were reported to be the highest at Rs. 175.53 in Goa, followed by Andaman & Nicobar Islands (Rs. 163.78) and the lowest at Rs. 65.74 in Tripura followed by Andhra Pradesh (Rs. 76.19), Bihar (Rs. 83.06) and Nagaland (Rs. 84.61). It has further been observed that the average daily earnings were recorded more or less the lowest in the North-Eastern States/Union Territories except Meghalaya.

Directly employed women workers were reported to be earning more than their male counterparts in Union Territory of Chandigarh only.

At the industry level, the highest average daily earnings for all workers was reported at Rs. 665.01 in industry group ‘353-Manufacture of aircraft and spacecraft’ followed by industry groups ‘232-Manufacture of refined petroleum products’ (Rs. 460.44) and ‘341-Manufacture of motor vehicles’ (Rs.405.57) and lowest at Rs. 60.03 in industry group ‘160-Manufacture of tobacco products’. For contract workers, the highest average daily earnings was reported at Rs. 265.99 in industry group ‘351-Building and repair of ships & boats’ and lowest at Rs. 47.26 in industry group ‘160-Manufacture of tobacco products’. For women workers, however, the highest average daily earnings was reported at Rs. 532.78 in the industry group ‘232-Manufacture of refined petroleum products’ and the lowest in industry group ‘160-Manufacture of tobacco products’ (Rs. 54.66).

The average daily earnings of women workers were higher than that of their male counterparts in 5 industries groups, viz., ‘182-Dressing and dyeing of fur, manufacture of articles of fur’, ‘231-Manufacture of coke oven products’, ‘271-Manufacture of basic iron and steel’, ‘272-Manufacture of basic precious and non-ferrous metals’ and ‘323-Manufacture of television and radio receivers, sound or video recording or reproducing apparatus and associated goods’.

Average daily earnings of employees by State and industry have been presented in Tables 5.6.1 and 5.6.2, respectively. At all India level, the average daily earnings were Rs. 675.56 for supervisory & managerial staff, Rs. 283.62 for other staff as compared to Rs. 176.78 for directly employed workers, Rs. 114.88 for contract workers, Rs. 160.56 for all workers and Rs. 229.99 for all employees.

For supervisory and managerial staff, the average daily earnings was highest in the Public Sector at Rs. 924.74, followed by the Private Sector (Rs. 676.66) and the Joint Sector (Rs. 548.35). At the State level, the highest average daily earnings for supervisory and managerial staff was reported at Rs. 1266.85 in Chhatisgarh and the lowest atRs. 205.44 in Tripura.

For other staff, the highest average earnings was reported at Rs. 445.29 in the Public Sector, followed by the Joint Sector (Rs. 399.84) and the Private Sector (Rs. 272.40). At State level, the highest and lowest average daily earnings for other staff were reported at Rs. 475.98 in Jharkhand and Rs. 99.41 in Nagaland, respectively.

For the directly employed workers, the highest and lowest average daily earnings were reported at Rs. 343.09 in Jharkhand and Rs. 74.87 in Manipur, respectively.

For all categories of employees, the highest average daily earnings were reported in the Public Sector (Rs.428.48), followed by the Joint Sector (Rs.304.66) and the Private Sector (Rs.219.87).

At the industry level, the highest average daily earnings were reported in the industry group ‘232-Manufacture of refined petroleum products’ at Rs. 696.92 for Directly employed workers, Rs.1568.97 for supervisory and managerial staff in industry group ‘300-Manufacture of office, accounting and computing machinery’, Rs.665.01 for all workers, Rs. 961.79 for other staff and Rs. 851.57 for all employees, respectively in the industry group ‘353-Manufacture of aircraft and spacecraft’. The lowest average daily earnings for directly employed workers, supervisory and managerial staff and other staff were reported at Rs. 78.40, Rs. 145.47 and Rs. 97.09 in industry group ‘201-Saw milling and planing of wood’, respectively. For contract workers, all workers and all employees, the lowest average daily earnings were reported as Rs. 47.26, Rs. 60.03 and Rs. 69.89, respectively in the industry group ‘160-Manufacture of Tobacco Products’.