The period after the Black Death was defined as a period of ‘agitation, excitement, anger, antagonism and creativity’ according to the Economic historian Christopher Dyer, the Government’s response to this dire situation was that of curbing demand and supply factors. In order to achieve this, they curbed the demand responses by regulating wages to pre-plague levels as lower population levels commanded higher real wages, at the same time it imposed restrictions on people’s mobility and settlement in urban areas. The usual trajectory of wages follows in pandemic economies as seen during the Black Death of the 14th century, and the Spanish flu in the 20th century. The reason is obvious, a supply shock due to large swathes of the working class being wiped out due to high rates of mortality helped in pushing the wages up, this stands in stark contrast to the Standard Economic Theory that establishes market equilibrium wages as the intersecting point of labour demand and supply. The Standard Theory of Wages, however, fails to account for various other factors affecting wages, embedded not only in social relations but also economic relations spanning within and across countries. Even within this analysis, there are glaring gaps between the global North and South and the way in which class relations are defined.
If we take a historical analysis of how wage levels came to exist at their existing levels, we note that in 19th century Britain, real per capita income began to rise not only because of productivity explosions but also because of large scale emigration to the newly discovered Americas. This released the pressure off the motherland, this movement of people was accompanied by subsequent movement of capital as well, the higher level of income for the immigrants acted as monetary compensation for moving across continents. By the time the third world countries gained independence, the race for colonization was over and there was no way to release the pressure off their land masses by settling in ‘newly found’ territories. The growing pool of reserved labour which neoliberal capital failed to absorb in productive activities languished in low return sectors of the economy at subsistence levels. In the context of India, the agricultural sector is the de facto ‘fall back’ sector of the masses in times of distress.
In India, the workforce (both organized and unorganized) is deeply rooted in the agrarian sector, this happens because the bargaining strength of urban workers is closely associated with incomes of the agriculture-dependent working population. According to Prabhat Patnaik, this implies a chain of effect starting with a fall in agricultural income due to the withdrawal of government support to this sector, there follows a synchronous movement of incomes of the entire working population of the economy. This means that if the government fails to act appropriately during the current rabi procurement season, it might spell bad news, not just for the agricultural sector wages but indirectly impact the entire working-class wages as well. If the same happens in the urban economy, (which has been evident in current times due to the large-scale migration of workers back to rural areas), working-class income everywhere gets affected.
Wage determination, therefore, becomes less and less a function of demand and supply and more and more a function of class power. If we take the regular demand-supply framework into consideration, we realize that the present pandemic not only causes a negative shock on the aggregate demand levels but also the aggregate supply levels. Fall in aggregate supply levels takes place due to supply chain disruptions affecting all sectors of the economy causing surplus available labour. The fall in aggregate demand levels causes an uncertainty shock which may cause negative business sentiments as a result of which new factories may not be planted in the near future (as long as firms do not offload current inventories). Now, the standard classical theory would tell you that if people are willing to work at lower wages, markets would clear and higher rates of employment would be witnessed at lower equilibrium wage levels. This trend was neither observed during the Great Depression nor is it observed today as people live hand to mouth. Which sector receives bailout by the government as the menace of livelihood loss looms large remains a larger political economy question with vested class interests.
Wages are socialized during pandemics. However, the political-economic architecture has a big role to play in this. For example, in the US where there is no state social security, nearly 3.3 million retrenched workers filed for unemployment insurance in one week. The number seems to be becoming larger and unsustainable in view of the paltry relief package providing for a week’s wages. In Germany on the other hand, government infrastructure in the form of a Kurzarbeit system allows for job retention in times of crisis along with the state replacing most of its lost earnings. What then happens to the nature of economic activities in the US, a nation consumed by its own antagonistic capitalistic fervour? Well, the unemployed pool of people seeks employment in gig economies at lower income levels with the owners of these enterprises exploiting them at lower wage levels due to their reduced bargaining power. While on the one hand average American toils, mega capitalists, on the other hand, build economies controlling monopolies during pandemics. Firms like Google and Amazon do not require bailouts; they, in fact, end up privatizing public utilities making huge amounts of money. Amazon, for example, is subsidized by postal services which itself is ‘going broke’ in the US. The income levels of mega capitalists go on increasing while that of the working class goes on decreasing with an increasing inequality between the two contributing to reduced bargaining power for the latter. Such class power is a huge determinant of wage rates in the economy. This is reflective of the nature of markets that are more imperfect and monopolistic than free.
In the Indian context, the situation is far more grave than it would appear. A staggering 90% of the working-age population in India was engaged in the informal sector, this sector lacks any sort of social cover which translates to a loss of a constant stream of income, due to this, many workers end up migrating back to their villages. At the start of the year, the Agricultural Sector was dependent on an increased price in the export markets to support livelihoods but with the arrival of a huge number of city dwellers, the sector will go through a wage decline.
An overbearing number of self-employed, casual and contractual workers in the informal economy such as artisans, labourers, & handicraftsman patiently wait for government relief packages to be announced as economic activity slumps which render them devoid of not just a ready market but access to raw materials as well.
The demand-supply dynamics, therefore, play no role in the informal sector where surplus labour is called up at will to work at piecemeal rates re-embedding their already weak bargaining position and no option except to migrate back when laid off from such employment.
In that case, is the unionized worker better off?
In a recent letter, the Parliamentary Panel announced that the industries would not be forced to shell out wages as businesses faltered due to the lockdown, this would allow the demand and supply forces to balance out the wages.
However, if the growth in the natural labour force is not absorbed by employment opportunities, it will lead to a collective fall in the bargaining strength of the workers, this fall will be catastrophic as India along with the World are expecting a historical level of unemployment, letting market mechanisms rule the roost in this condition without the provision for social security measures will lead to havoc in the economy of the country.
According to the Phillips Curve, a higher level of unemployment leads to lower wages; it, however, does not define the hurt or pain the higher level of unemployment causes for the overall economy. In the post-pandemic world, labour-saving techniques are bound to be used to minimize contact with the production process. This will transfigure the production processes and spell disaster for the labour surplus economy. The extent to which these are introduced and amalgamated to redefine wage-setting rules is a function of the political economy of development more than forces of demand and supply.
References-
Prabhat Patnaik- 'Sink for Indian Capitalism'
W.A Lewis-'The Evolution of the International Economic Order'
Emmanuel Saez and Gabriel Zucman-'New York Times'.
By-
Nishat Anjum
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