India’s reported plan to shift from “minimum” to “living” wages under prodding by the International Labour Organization (ILO) would, at best, mark an incremental progress in the country’s efforts to protect its large low-income workforce from “unduly low pay”. What is needed to correct the poor wages and rising inequality is a policy mix that would simultaneously spur economic growth and labour productivity. The country’s perceived demographic dividend would turn unreal if not reinforced with time-bound skilling of its still-youthful population. More budgetary provisions for primary education and ensuring optimal outcome of such expenditure is equally important. The whole concept of statutory wage-setting as one of the ways for social security comes in when collective bargaining as a tool to ensure decent wages is not effective enough. When the national product is insufficient, as for India, which is still a low middle-income country, wages and per-capita product are bound to be depressed.
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But even as the gross national product is at a level where economic and social well-being of all population could reasonably be ensured, economic actors could remain immature and keep worker pays low. This second premise for statutory wage-setting too has always existed in India, and only tends to stay as the country’s economic size is growing. Wage floors as a mechanisms to mitigate the issue has had only limited efficacy. The enforcement of the Minimum Wages Act, 1948 has been lackadaisical. Also, there has been an implicit precedence to keeping labour costs low, as the Indian economy struggled to achieve global competitiveness. Labour market reforms in India kept the spotlight primarily on keeping average factor cost of labour from rising faster. India’s labour cost is already one of the lowest, but it isn’t yielding the desired competitive outcome, because worker productivity too is abysmal.
While job creation in the country has long remained below par, the situation has in recent years reached crisis proportions: The recent ILO-IHD report notes that between 2012 and 2019, the country witnessed no employment growth at all, while gross value added (GVA) expanded by an annual average rate of 6.7%. A reverse migration of job-seekers to the low-paying farm sector is nothing less than alarming. At present, the lowest minimum wages for “scheduled jobs”—those for unskilled workers farm and construction workers in category C areas—are Rs 300 and Rs 350 respectively. At the all-India level, around 41% of regular and 52% casual unskilled farm workers did not even receive the minimum wages prescribed in 2022.
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In fact, “living wages” aren’t a new concept—the preamble of the ILO’s pioneering 1919 Convention spoke of a “provision of adequate living wage” and India’s Constitution also referred to it under the directive principles. Put simply, what the ILO seeks is to ensure “minimum income required for a worker to cover essential expenses.” This may require a one-time steep upward revision of the current minimum wages in India and subsequent periodic adjustments for inflation. However, correcting the structural problems in the economy, by balancing the (mutually complementary) interests of capital and labour, is essential to address the vexed issue of jobless growth meaningfully. Incentives to chip makers and electric car giants may have a persuasive value, but policy priority must shift to job creation across assorted other industries and services, and making people employable. Capital, for its own interest, must be more mindful of the economic value of adequate wages.
India’s reported plan to shift from “minimum” to “living” wages under prodding by the International Labour Organization (ILO) would, at best, mark an incremental progress in the country’s efforts to protect its large low-income workforce from “unduly low pay”. What is needed to correct the poor wages and rising inequality is a policy mix that would simultaneously spur economic growth and labour productivity. The country’s perceived demographic dividend would turn unreal if not reinforced with time-bound skilling of its still-youthful population. More budgetary provisions for primary education and ensuring optimal outcome of such expenditure is equally important. The whole concept of statutory wage-setting as one of the ways for social security comes in when collective bargaining as a tool to ensure decent wages is not effective enough. When the national product is insufficient, as for India, which is still a low middle-income country, wages and per-capita product are bound to be depressed.
But even as the gross national product is at a level where economic and social well-being of all population could reasonably be ensured, economic actors could remain immature and keep worker pays low. This second premise for statutory wage-setting too has always existed in India, and only tends to stay as the country’s economic size is growing. Wage floors as a mechanisms to mitigate the issue has had only limited efficacy. The enforcement of the Minimum Wages Act, 1948 has been lackadaisical. Also, there has been an implicit precedence to keeping labour costs low, as the Indian economy struggled to achieve global competitiveness. Labour market reforms in India kept the spotlight primarily on keeping average factor cost of labour from rising faster. India’s labour cost is already one of the lowest, but it isn’t yielding the desired competitive outcome, because worker productivity too is abysmal.
While job creation in the country has long remained below par, the situation has in recent years reached crisis proportions: The recent ILO-IHD report notes that between 2012 and 2019, the country witnessed no employment growth at all, while gross value added (GVA) expanded by an annual average rate of 6.7%. A reverse migration of job-seekers to the low-paying farm sector is nothing less than alarming. At present, the lowest minimum wages for “scheduled jobs”—those for unskilled workers farm and construction workers in category C areas—are Rs 300 and Rs 350 respectively. At the all-India level, around 41% of regular and 52% casual unskilled farm workers did not even receive the minimum wages prescribed in 2022.
In fact, “living wages” aren’t a new concept—the preamble of the ILO’s pioneering 1919 Convention spoke of a “provision of adequate living wage” and India’s Constitution also referred to it under the directive principles. Put simply, what the ILO seeks is to ensure “minimum income required for a worker to cover essential expenses.” This may require a one-time steep upward revision of the current minimum wages in India and subsequent periodic adjustments for inflation. However, correcting the structural problems in the economy, by balancing the (mutually complementary) interests of capital and labour, is essential to address the vexed issue of jobless growth meaningfully. Incentives to chip makers and electric car giants may have a persuasive value, but policy priority must shift to job creation across assorted other industries and services, and making people employable. Capital, for its own interest, must be more mindful of the economic value of adequate wages.
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The value of wage: A shift in floor pay mechanism may improve worker protection, but we need higher labour productivity
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30.03.2024
India’s reported plan to shift from “minimum” to “living” wages under prodding by the International Labour Organization (ILO) would, at best, mark an incremental progress in the country’s efforts to protect its large low-income workforce from “unduly low pay”. What is needed to correct the poor wages and rising inequality is a policy mix that would simultaneously spur economic growth and labour productivity. The country’s perceived demographic dividend would turn unreal if not reinforced with time-bound skilling of its still-youthful population. More budgetary provisions for primary education and ensuring optimal outcome of such expenditure is equally important. The whole concept of statutory wage-setting as one of the ways for social security comes in when collective bargaining as a tool to ensure decent wages is not effective enough. When the national product is insufficient, as for India, which is still a low middle-income country, wages and per-capita product are bound to be depressed.
Also ReadSingapore raises minimum qualifying salary amount for foreigners
But even as the gross national product is at a level where economic and social well-being of all population could reasonably be ensured, economic actors could remain immature and keep worker pays low. This second premise for statutory wage-setting too has always existed in India, and only tends to stay as the country’s economic size is growing. Wage floors as a mechanisms to mitigate the issue has had only limited efficacy. The enforcement of the Minimum Wages Act, 1948 has been lackadaisical. Also, there has been an implicit precedence to keeping labour costs low, as the Indian economy struggled to achieve global competitiveness. Labour market reforms in India kept the spotlight primarily on keeping average factor cost of labour from rising faster. India’s labour cost is already one of the lowest, but it isn’t yielding the desired competitive outcome, because worker productivity too is abysmal.
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