- The pace of job creation is rising to 8.5% after losses during the pandemic.
- According to Jefferies, total employee expenses grew 13% year-over-year in FY22, the fastest increase in nine years.
- No boom in unorganized jobs or wages in the sector yet, but could pick up by the end of the calendar year.
After massive worker cuts following the outbreak of the pandemic, Corporate India has created more jobs than was cut in FY21. A study of 760 publicly traded companies conducted by global investment bank Jefferies shows that the 8.5% annualized job creation rate more than made up for the losses the industry saw in FY21. This boom in white-collar jobs bodes well for urban consumer games such as hotels, car companies and food tech players like Zomato.
No prizes for guessing that the IT sector has created a maximum of new jobs – the number of employees in the sector increased by 22%, contributing 61% to the additional jobs in the organized sector.
A comment from Jefferies says: “Public-owned enterprises (PSUs) in particular continued to cut jobs, with headcount declining 1.5% year-over-year. Indeed, private sector hiring was strong at 11.3% and now accounts for ~80% of the total workforce in the listed space.”
The study of 760 listed companies accounts for 6 million employees.
Sectoral job creation in FY22
| Sectors | Number of jobs created in FY22 |
| THE | 2.85,000 |
| Financial | 97,000 |
| Industrial | 68,000 |
| Consumer Goods | 22,000 |
| materials | 9,000 |
| healthcare | 5,000 |
| Property | 1,000 |
| Telecom | -1,000 |
| Utilities | -3,000 |
| Staples | -3,000 |
| Energy | -14,000 |
With employee turnover rising, companies are also giving liberal wage increases to retain employees. The average turnover in the IT sector shows a trend of above 20%. The era of double-digit pay rises is back after years of pay cuts. According to his research, Jefferies found that total employee expenses increased 13% year-over-year (YoY) in FY22, the fastest increase in nine years. The high number of new hires (mostly entry level) kept the increase in the average cost per employee (4.2% yoy) at a low level in 10 years. For the IT sector, the average cost per employee fell by 1.9% year-on-year due to the ‘pyramid effect’, which basically means that companies are hiring more freshmen to lower labor costs.
The report also found that the average pay increase in PSUs was 7.5% compared to the increases given on average by the listed companies. This reflects an aging workforce at the PSUs.
On Monday, the global company Aon released a report on salary forecasts for 2023. The research shows that salaries in India are expected to increase by 10.4% in 2023, compared to an actual increase of 10.6% so far in 2022 , which is slightly higher than the 9.9% increase expected in February.
The global professional services firm said attrition remained high in the first half of 2022 at 20.3%, only marginally lower than the 21% recorded in 2021, keeping pressure on salaries. This trend is expected to continue in the coming months.
“Adjusted for employee inflows and outflows, which skew changes in ‘average costs’, we estimate that annual wage increases were an effective 12.5% YoY (i.e. above inflation) in FY22, an 8-year record . The implied FY20-22 CAGR wage growth rate was 10.3%, broadly in line with the Tr-5-Y CAGR run rate of 10.9%. Wage increases should remain above average in FY23 given inflation and as corporate earnings are reflected with some lag in FY22,” said Jefferies.
But as is the case with Indian business, executive compensation rose by 37%, data from 120 companies shows. This is 3 times the salary increase given to employees by the same companies.
Unskilled workers have not seen the same wage growth as there is not yet a construction boom and automation has also resulted in cost savings for major EPC players such as Larsen & Toubro. Construction workers employed by the engineering and procurement companies (EPC) generally provide a good idea of jobs in the informal sector. According to Jefferies, the L&T workforce fell 14% year-over-year to 275,000 and is 33% below its peak in FY15, partly due to the slowdown in housing construction (upturn from FY23) and partly due to automation.
According to government data, rural wage growth is also showing a weak trend, at around 4% year-on-year. For low-skilled jobs, some recovery is expected by the end of the year.
Data suggests that the annual labor force growth of 10-12 million on a basis of 500 million is not bad from a demographic point of view, as most jobs are created outside of agriculture.
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