The impact of the pandemic on wages and salaries

Aggregate wages and salaries at 3007 listed non-financial companies fell 1.44 percent year-on-year in the September 2020 quarter, an improvement from the 3.5 percent drop in the June quarter.

Manas Chakravarty

November 17, 2020 / 14:42 IST

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The September quarter corporate results have sprung a pleasant surprise with profits coming in well above expectations. A CMIE study of 3007 non-financial listed firms shows that operating profits rose by an extraordinary 38.4 percent from the same quarter a year ago. That’s a nice change from the 46.86 percent drop in operating profits in the June quarter and a slightly lower fall in the March 2020 quarter.

It helps, of course, that a year ago, in the September 2019 quarter, operating profits fell 34.88 percent--much of the improvement in the September 2020 quarter is due to a favourable base. Nevertheless, the fact remains that operating profit margins for these firms were as high as 17.6 percent in the September 2020 quarter, the highest level in years.

the-impact-of-the-pandemic-on-wages-and-salaries R Unfortunately, though, one of the reasons for the high margin was a reduction in the wage bill. Aggregate wages and salaries at these companies fell 1.44 percent year-on-year in the September 2020 quarter. That’s an improvement from the 3.5 percent percent drop in the June quarter. The chart alongside has the details.

The sectors that saw the biggest drops in salaries and wages were obviously the ones most affected by the pandemic—tourism, down 45 percent; hotels and restaurants, down 38 percent; air transport, down 47 percent; and exhibition of films, down 62 percent. On the other hand, salaries and wages went up in the ‘cosmetics, toiletries, soaps & detergents’ firms by a cool 21.6 percent. But as the chart shows, the September quarter was overwhelmingly a quarter when salaries and wages were squeezed.

Of course, it isn’t just lower salaries that have contributed to profits during the quarter---raw material costs have come down and interest costs have plunged. But the trouble with lower wage costs is that while it increases profits for companies, salary cuts and layoffs and even lower intake of personnel lowers effective demand in the economy, thereby hurting overall growth. It is also worth remembering that if wages and salaries fell in listed companies, which are some of the biggest firms in the country, the impact on the millions of small and micro enterprises in the country would have been far more severe.

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