Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

Explained: Why is it necessary to fix a minimum wage?


From UPSC perspective, the following things are important :

Prelims level : The Code on Wages, 2019

Mains level : Minimum Wages

The Ministry of Labour and Employment on November 1 published the draft rules for implementing the provisions and sought comments from stakeholders until Dec 1.

The Code on Wages, 2019

  • The code seeks to regulate wages and bonuses for all workers employed by any industry, trade, business or manufacturer.
  • The Code replaces 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.
  • Following the consultation, the Centre will notify the rules that will create the mechanisms to fix a floor wage that would then undergird the minimum wages for different categories of workers — unskilled, semi-skilled, skilled and highly skilled — that the States and Central government would have to set and enforce.

Why need minimum wages?

  • Minimum wages are accepted globally to be a vital means to both combating poverty and, equally crucially, ensuring the vibrancy of any economy.
  • In the aftermath of the 2008 global financial crisis, the purchasing power worldwide got eroded.
  • Thus the regular adjustment of wages, in consultation with the social partners is a means of reducing inequality, increasing demand and contributing to economic stability.

Why is the Code significant?

  • The Code acknowledges that the aim in setting the floor wage is to ensure “minimum living standards” for workers and the draft rules incorporate criteria declared in a landmark judgment of the Supreme Court in 1992.
  • These include:
  1. Net calorific needs for a working class family (defined as the earning worker, spouse and two children or the equivalent of three adult consumption units) set at 2,700 calories per day per consumption unit,
  2. Annual clothing requirements at 66 metres per family,
  3. House rent expenses assumed at 10% of food and clothing expenditure, as well as expenses on children’s education, medical needs, recreation and contingencies.
  • The rules, similarly, cover almost the entire gamut of wage-related norms including the number of hours of work that would constitute a normal working day time interval for revision of dearness allowance, night shifts and overtime and criteria for making deductions.
  • A separate chapter of the draft rules also deals with the payment of bonus while another lays down the guidelines for the formation of the Central Advisory Board as well as its functioning.

How will it impact the economy?

  • A lot will depend on the final floor wage or wages (there could be different floor wages for different geographical areas) that the Centre will choose.
  • The Labour Ministry had in February this year recommended that a “need based national minimum wage for India” ought to be fixed at ₹375 per day (₹9,750 per month).
  • Additionally, the committee had mooted payment of a city compensatory allowance averaging up to ₹55 per day for urban workers.
  • Earlier, in 2015, the Seventh Central Pay Commission had recommended setting the minimum pay for government employees at ₹18,000 per month.
  • Such a statutory national minimum wage would have multiple impacts including helping lift wage levels and reducing wage inequality, thus furthering inclusive growth, according to the survey.
  • For India to reap the much-touted ‘demographic dividend’, robust wage expansion would ultimately be essential to help buoy consumption-led economic growth.

Way forward

  • Trade unions have voiced their reservations with multiple aspects of the Code and plan to submit detailed feedback.
  • The points of contention include the nine-hour working day definition, a lack of clarity in the rules on scope for upgradation of workers’ skill category and the lack of representation for trade unions in the wage fixation committee.
  • The ultimate success of the Code will be determined by the extent to which the minimum wage set is both fair and actually implemented so as to benefit the millions of workers in the unorganised sectors of the economy.
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