By Prashansa Srivastava
The Code of Wages Bill was introduced in the Lok Sabha on 10th August 2017. The bill aims to fix a national minimum wage for the unorganised sector and make a basic minimum wage a statutory right for all citizens.
Benefits of the bill
The bill will consolidate and amend the laws relating to wages and bonus. It will amalgamate four laws: the Payment of Wages Act 1936, the Minimum Wages Act 1948, the Payment of Bonus Act 1965 and the Equal Remuneration Act 1976. The clubbing of these multiple laws will make them easy to understand, implement and comply with. It is being undertaken to improve the ease of doing business, attract foreign investment and stimulate entrepreneurship.
Wages will be paid according to a fixed timeline and in some cases only through electronic means or cheque. Other specifications regarding payment of wages such as during sick leave, payment of bonus, authority to make deductions among others will also be laid out in the bill. It also requires the government to revise minimum wages every five years, thereby ensuring that wages are in line with changing market conditions.
About 40 crore workers are presently employed in the unorganised sector. According to labour minister, Bandaru Dattatreya, the large perspective of the bill will uplift these workers and ensure their rights. It will also help to enhance their standard of living and prevent exploitation. The universal minimum wage would be applicable for all workers irrespective of their pay. As of now, minimum wages are applicable to only 51 scheduled employments.
The economic consequences
The setting up of a minimum wage may prove to be counterproductive. This will either hamper job hiring or lead to retrenchment of employees. The market for labour like all markets is subject to the forces of demand and supply. Without government intervention, both the opposing forces adjust to balance labour demand and labour supply. Minimum wage leads to an imbalance between the two forces, with the quantity of labour supplied vastly exceeding quantity demanded and eventually leading to unemployment. The impact of the minimum wage is exacerbated when it comes to unskilled workers since this wage is binding for them. The equilibrium wages for highly skilled and experienced workers are well above the minimum wage and they are thus unaffected. Minimum wages instead of eliminating poverty, increase unemployment and reduce family income.
Worsening the situation?
At a time when India is facing job losses and the rate of creation of new jobs is a serious concern. A higher minimum wage will only worsen the situation. The Bill, if taken forward must also specify the details of how it proposes to deal with the implementation of minimum wages for the scattered unorganised sector.
The additional burden will also hit industries such as the garment industry. The almost doubling of wages will decrease exports. In the midst of a worldwide economic slowdown, this will make the Indian garment industry economically unviable and unsustainable in the future. Similar downturns can be envisioned for other industries such as handicrafts and agricultural commodities.
The problems with minimum wage
The diversity of India in terms of cost of living, nature of work and rate of unemployment makes the uniform standard wage unviable. The setting up of a minimum standard wage will also encumber the movement of companies to hinterlands where they look for competitive advantage in terms of low labour costs. It will restrict the economic growth of these backward regions and also add to the existing problem of increased migration to urban areas which are already struggling to cope with the burgeoning population.
It is crucial to emphasize the likelihood of accelerated automation as a result of higher minimum wages. With the increased cost of labour, machines that are more efficient and cost effective will readily displace people wherever possible. In a labour abundant economy like ours, this can severely skew the labour-capital ratio and lead to rampant unemployment.
A more effective strategy
The minimum wage bill is pro-poor and employee-friendly on the surface. However, on closer inspection, the fear of rising unemployment seems inevitable. For India, a more effective strategy to elevate the labour market would be to ease labour laws, reduce regulatory hurdles for businesses and focus on improving workers conditions and rights.
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