The Sunday Times Economic Analysis                   By the Economist  

Estate wages below poverty line
Once again we have experienced labour troubles on the tea estates. The demand for higher wages, refusal of the management on the grounds that they can't afford an increase in wages, a strike, political efforts to resolve the differences, a compromise increase in wages and then back to normal.

This is the familiar scenario every year or two. Meanwhile there is a loss in tea production that the country cannot afford at this juncture. At the time of writing this there is an expectation that the issue would be resolved. The Minister of Estate Infrastructure has promised a wage higher than that asked by the trade unions. There can be little doubt that tea plantation workers are poorly paid. In fact their current wage, the wage they asked for and the wage they have been promised, are less than the wage rate in other sectors. What is surprising is that the wage rate for estate workers is well below that of the wage rate for unskilled labour in informal employment.

It is ironical that the industry that was the mainstay of the economy and still contributes about 2.3 per cent to GDP directly must pay such poor wages. But the industry claims that any increase in wages would make the industry non- viable. If this is so there is a need for an in-depth search into the reasons for this condition. If the productivity of estate labour in tea is less than Rs. 151 that the workers have demanded, then how do we remedy this?

Economists discuss the productivity of labour theoretically, but the exact calculation is a difficult one prone to various interpretations. This is particularly so as in practice it is not possible to separate the productivity of labour from that of capital and management. Besides the efficiency of capital employed and management has a bearing on the productivity of labour? So precise estimates of what labour produces and should receive as wages are difficult to determine.

What really appears to matter is the bargaining strength of labour unions. This in turn has also a political dimension as the labour unions are tied with political parties allied to the government. Trade unions therefore choo se the most opportune time to threaten strike action. Invariably they gain. What this means is that the process could be and has been detrimental to the economy.

About one fourth of the population in the estate sector is estimated to be below the poverty line. This compares with 27 percent in rural areas and 14 percent in urban areas. In the case of the estate sector the wage level, cost of basic items of living, particularly food, and the number of dependents in an estate family have an important bearing on their poverty.

The current wage of plantation workers is just above what the World Bank uses as the criterion for acute poverty. This means that households with dependents are below the internationally accepted level of acute poverty. The number of dependents is however small owing to several members in a household being employed. Yet the current wage is likely to place a large proportion of households below the acute poverty line. The proposed wage by the Minister of Infrastructure is likely to make a significant dent in poverty. With this wage it is likely that only families with a large number of dependents would fall below the acute poverty line.

However the wage hike will still mean that a high proportion of estate households would remain below the international poverty line (not acute poverty line) of US$ 2. The World Bank definition of poverty is a per capita daily income of US$ 2 or about Rs. 190, while the World Bank defines acute poverty as below US$ 1 or about Rs. 95 at the current exchange rate.

What is needed is a method for determining a just wage for the tea estate workers and a means for wage revisions that do not disrupt tea production. It is also important to ensure that wages are related to proper production norms and that workers are given an incentive to be efficient by gearing wages to productivity. It may also be time for a bonus system for workers based on the profits of the estate. May be it could be a percentage of the large management fees enjoyed by the managing companies!

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