Unit Labour Costs as a Tool for Competitiveness and Policy Analysis: A Reassessment

The analysis in this paper shows that while India’s unit labour costs in organised manufacturing displays a clear upward trend since 1980 with a decline since the early 2000s, this is exclusively the result of the increase in the price deflator used to calculate the ulc. The labour share in value added of India’s organised manufacturing sector has been on a downward trend, from 0.6 in 1980 to 0.26 in 2007. The study also finds that real wages have increased minimally during the period analysed – well below labour productivity – while the real profit rate and unit capital costs have increased substantially. The analysis questions policy recommendations that advocate wage moderation, which result from simply looking at the evolution of the ulc, and that blame the loss of competitiveness on high or increasing wages. This paper represents the views of the authors and not necessarily of their organisation or the countries that they represent. Utsav Kuma