ABSTRACT

In labour-surplus developing economies it is generally noticed that a positive or non-zero wage exists with large-scale unemployment or underemployment particularly in the agricultural sector. There may also be a situation where a perfectly elastic supply of labour with rigid wage, corresponding to a subsistence-level wage, exists. This may be due to various structural and institutional factors. It is also possible that stable or even rising wages exist with large-scale unemployment. The basic question is why unemployment among workers does not put pressure on wages to push them down to a market-clearing level. In this context, it is interesting to find out the factors that determine wages in a labour-surplus economy like India. The majority of the workforce in India resides in rural areas and works in the agricultural sector. A disproportionately large number of workers dependent on this sector are a reflection of uneven development of other sectors, which are unable to absorb labour. The pressure to absorb labour falls on the agricultural sector. This is compounded with increasing population, resulting in large-scale unemployment and underemployment prevailing with low subsistence-level wages.