Rural Wage Dynamics in India: What Role does Inflation Play?

This paper studies the relationship between rural wage growth and inflation in India to assess the risk of a wage - price spiral to the inflation trajectory. The results of a cointegration and Vector Error Correc tion Model (VECM) show that in the long - run both nominal agricultural wages and non - agricultural wages exhibit statistically significant positive relationship with rural prices. Findings of a dynamic panel data model using Arellano - Bover/Blundell - Bond syst em of generalized method of moments (GMM) structure show that during November 2013 - November 2017, changes in rural prices had a positive and significant impact on changes in nominal wages, controlling for other determinants such as non - agricultural wages, Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) wages and rainfall departure from normal. The results also point to significant stickiness in nominal wages and the presence of a statistically significant positive impact of non - farm (con struction sector) wages on agricultural wages. This paper does not find any robust empirical support for the risk of a wage - price spiral in India during the period of study.