Stagnant salaries, soaring costs: The job crunch
Recently, an acquaintance, who is a senior manager in a big firm, was complaining about GenZ recruits.
"They don't want to work for even Rs 25,000 per month," he exclaimed. "I started at just Rs 10,000."
"When was that?" I asked him.
"In 1994," he replied.
I didn't have the heart to tell him that Rs 10,000 back then is the same as Rs 70,000 today. I also didn't want to point to the fact that he probably got huge raises within the first five years. Whereas, freshers today can expect their salaries to rise at just 5-8 per cent per year.
It isn't my friend's fault that he cannot gauge the magnitude of the salary crisis for India's white-collar workers. Most of us do not think of inflation when we compare salaries across generations. That is because psychologically, we as consumers are only used to treat money in nominal terms.
So, if Rs 25,000 was a great starting salary 30 years ago, we think it must be good today as well.
I, for instance, reached a salary of Rs 1,00,000 per month in 2004. That was five years into my job. In today's prices, that is equal to
Rs 3,75,000. But, if I am interviewing a candidate with similar experience for a job, and they ask for Rs 1,50,000, I consider it too steep.
But we all know from our daily experience that
Rs 25,000 doesn't buy you much in a big city. A single room in a decent part of any city will cost at least
Rs 15,000. In Gurgaon, where I live, a room with a small kitchenette, costs much more.
That leaves a young employee with just Rs 10,000 for all their monthly expenses. Even better paid new joinees don't have more than Rs 25,000 to spend on themselves after they pay their rent and utility bills. Their daily conveyance alone would eat up Rs 3,000-5,000 out of that.
A single mid-level restaurant meal would cost Rs 300-500. Four outings with friends in a month can set them back by Rs 1,200-2,000. And, don't tell me that they shouldn't eat out. We all did when we were young — went to movies with friends, splurged on an occasional fancy meal, bought sneakers and jeans. That is what middle-class life has been about since the mid-1980s.
In fact, 20 years ago, people signed up for car loans as soon as they got a steady white-collar job. That is why passenger car sales grew at 15 per cent per year between 2001-02 and 2011-12. Since then, there's been a steady slowdown — car sales have grown at just 5 per cent per year, with most of the real increase taking place in multi-utility vehicles for the more affluent.
But it is not just the case of starting salaries. Even mid-rung white-collar employees with 10-15 years of experience are stuck with minimal pay hikes. Some are being asked to take pay cuts while others are simply being retrenched. A recent survey showed that 59 per cent of corporate employees do not expect good increments, and people at the middle-management level are most likely to expect low salary hikes.
This is happening at a time when actual inflation faced by the urban middle class, who populate white-collar positions in India, has risen sharply. The official urban retail inflation figure, which looks at an average basket of goods and services, underestimates the real increase in costs because it covers the urban poor as well, whose consumption patterns are very different.
Take the cost of housing, for instance. Official urban retail inflation data says that housing costs have risen at an average of 4 per cent per year over the past five years. A recent study in the top seven cities in India shows that rent for a standard two-BHK house has risen at 11 per cent per year in the same period. That's nearly three times compared to what official numbers show.
Housing accounts for 22 per cent of the total consumption expenditure basket for calculating urban retail inflation. In reality, for most families living in big cities, it is at least 30 per cent of their total costs. If we readjust the weight for housing and take into account the actual rise in rents, then the average retail inflation faced by such middle class in the past five years rises to 7.7 per cent from 5.7 per cent.
A recent study by Quess Corp shows that between 2019 and 2023, salary hikes have averaged just 0.8 per cent in the engineering, manufacturing, process and infrastructure (EMPI) sector, while they averaged 5.4 per cent in the FMCG sector. Other studies show that salaries in the IT sector have been more or less stagnant for the past 10 years, or have grown at a meagre rate.
So, a middle-class mid-rung employee earning Rs 1,00,000 in 2018-19, living in a big city, would have earned about Rs 1,25,000 in 2023-24. If they spent 85 per cent of their salary or Rs 85,000 back then, the real inflation faced by them would have taken their expenses to Rs 1,23,000 in 2023-24. So, if they were saving Rs 15,000 per month in 2018-19, five years later, they were saving virtually nothing. Earlier, they could have saved up to buy gadgets and durables for the home. Now, they simply can't.
This has had a huge impact on the demand for goods and services that the middle class has traditionally generated in India. The demand for all kinds of goods — soaps, shampoo, hair oil, detergents, biscuits, razor blades, readymade garments, footwear, refrigerators, passenger cars, etc — has either declined or is stagnant, after a brief spike in the middle of 2021, when the Covid lockdowns ended.
This is a major economic crisis that India's middle class faces today. Short-term solutions, like income tax breaks, cannot help resolve this. The government has been trying to nudge corporates into increasing wages — their profits have quadrupled in the past five years, while their wage bills have remained stagnant. But corporate profits are now shrinking. Big companies saw their profits grow by just 5 per cent in the latest quarter, while small listed companies saw a decline in profits. They are unlikely to give more to their white-collar employees.
