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Approach:

  1. Introduce the mandate of Code on Wages Bill 2019.
  2. Mentioning Indian wage scenario, discuss why the need for a wage bill ?
  3. Mention the potential challenges & the pitfalls that are likely to arise.
  4. Conclusion

The Code on Wages Bill 2019 mandates a minimum wage across the country, with a universal minimum payment of Rs. 178/day. However, the wage prescribed is less than half the Rs. 375/day recommended by a high-powered labor Ministry panel and much below the Rs 700 fair wage that the 7th Central Pay Commission had arrived at.

Need for a wage bill ? : India has a serious wage issue. Acc. to Economic Survey 2018-19, India’s minimum wage system comprises 1,915 minimum wages defined for various scheduled job categories across states. So, the process of determining the minimum wage is complex; the level of compliance is too abysmal. Survey shows 90% workers are unaware of minimum wage and hence, severely exploited.

The Periodic Labor Force Survey 2017-18 estimated 45% of the regular workers are paid less than the minimum wage. The wages bill increases the prevailing minimum wage by a paltry Rs. 2/day. The justification for such marginal increase is that Rs. 178 is a definitive minimum for all workers across all sectors, thereby allowing for wage rise in informal sectors and will address the issue of gender-based disparities as well. Presently, women earn about 45% less than men in the same occupation. A national wage floor will hopefully reduce the rural-urban gap. The mandated minimum wage will potentially reduce the glaring inequities for casual workers too.

Potential Challenges: In a sharp contrast to the market-friendly laws, the Bill came out forcefully arguing for increasing the cost of doing business by increasing the wage costs. Economists point that when minimum wages go up, more people end up out of work, since companies cut back on labor at the higher wage bracket. But the government has chosen to increase the minimum wages. But given India’s diversity, it won’t be easy to set standards and define minimum wages across industry. The 15th Indian Labor Conference had suggested norms to fix minimum wages based on per person intake of 2,700 calories/day and 18 yards of clothing per year, minimum housing-rent for low income groups, fuel, lighting expenses, and other miscellaneous expenditures.

Beyond such complications, the government also must accommodate the costs and requirements changing across the country, from low-wage economy of Tripura to highly labor scarce state like Kerala. It must also address the question on what constitute fair wage and what defines a living wage ? Is minimum wage the ultimate goal of humane society or should it go beyond to ensure workers are paid fair & livable wages ? Article 43 of DPSP encourages the state to give higher minimum wages, which the new code seeks to do.

Pitfalls Ahead:

  • Since small & unorganized business employ more than 90% of the workforce, the major problem will be compliance leading to harassment from labor officials. This will certainly impose higher costs.
  • Nearly 50% of the workforce is self-employed; nearly 30% work on casual basis approaching the labor market irregularly. This new code will actually work for 20% of the total workforce, within which more than half belong to very small enterprises.
  • In competitive markets, any increase in wage costs cannot be passed on to consumers by increasing prices – falling profit margins, and capital may move away from formal sector, increasing employment & wages in unorganized sector.
  • A centralized code is unlikely to reduce complexity and may be counterproductive in bringing transparency or accountability.
  • The code is encumbered with too many objectives. It also goes to do what the Central Advisory Council was doing – recommending a fair wage. This can reduce the likeliness of its success.
  • It is a lurking danger that higher wages may necessarily result in fewer jobs, when unemployment is already at its highest. Also, a single mandate on minimum wages will not be enough to tackle inequality.

The new code is being seen as a silver bullet for the slew of challenges faced by the labors. It will increase disposable income, make working conditions humane by implementing regulated working hours, paying for overtime and thereby, reducing worker exploitation. Another facet is ending gender discrimination in wage payments. Though a well-intentioned and brave step, it can be rendered ineffective through multiple lofty goals and poor implementation. Also, incentivizing local hiring by mandating jobs quota for locals, providing wage support to companies, and keeping wage costs low for firms operating in competitive environments, can be duly considered.

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