Economic Survey: Your wages to change? This is what FinMin recommends

Low pay and wage inequality remains a critical obstacle in achieving inclusive growth, revealed Finance Ministry in the Economic Survey 2018-19 that was tabled in Parliament today. In the last five years, during a period of global economic slowdown, sluggish global trade and export growth, India’s growth story has been powered by private consumption. Therefore, the survey says, with 93 per cent workers in the informal economy, a well designed minimum wage system can reduce inequalities in incomes, bridge gender gaps in wages and alleviate poverty.

The present minimum wage system in India is complex with as many as 1,915 minimum wages defined for various scheduled job categories across states, as per the survey.

Minimum wage system in India: 

The survey pointed out that, India was one of the first developing countries to introduce minimum wages with the enactment of the Minimum Wages Act way back in 1948. The Act protects both regular and casual workers. Minimum wage rates are set both by the Central and the State governments for employees working in selected ‘scheduled’ employment. Minimum wages have been set for different categories of workers according to skill levels, location and occupations.

The main justification for persisting with different levels of minimum wages across states is that they reflect different levels of economic development. Here's a structure of minimum wage per day in India state-wise!

(Image source: Economic Survey)

What can be done ahead? 

The survey says, "It is evident from above that a welldesigned minimum wage system can be a potent tool for protecting workers and alleviating poverty, if set at an appropriate level that ensures compliance. International experience has shown that relatively simple systems are more effective and usually complex systems are least effective."

The Economic Survey recommends following factors for reviving minimum wage system:

Simplification and Rationalisation: 

Rationalisation of minimum wages as proposed under the Code on Wages Bill needs to be supported. This code amalgamates the Minimum Wages Act, 1948, the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976 into a single piece of legislation. The definition of wage in the new legislation should subsume the present situation of 12 different definitions of wages in different Labour Acts.

Setting a National Floor Level Minimum Wage:

Central Government should notify a “national floor minimum wage” that can vary across the five geographical regions. Thereafter, states can fix the minimum wages, which shall not be less than the “floor wage.” This would bring some uniformity in the minimum wages across country and would make all states almost equally attractive from the point of view of labour cost for investment as well as reduce distress migration. 

Criteria for setting minimum wage: 

Further, the Code on Wages Bill should consider fixing minimum wages based on either of the two factors viz; (i) the skill category i.e unskilled, semi-skilled, skilled and highly skilled; and (ii) the geographical region, or else both. This key change would substantially reduce the number of minimum wages in the country. 

Role of Technology: 

Technology can help in overcoming this behavioural bias by making information available in a simple and clear manner. Use of a variety of online, mobile phone and networking technologies have the potential to facilitate the collection and analysis of labour statistics, assist with the dissemination of information about labour laws and policies, reduce costs and improve transparency.