What the raising of minimum wages means
In theory, it’s a good move. But how it is implemented on the ground will be key
Hindustan Times reported on Wednesday that the forthcoming wage code, a part of ongoing labour law reforms by the Centre, could see minimum wages go up by almost 28%. The new floor will also be the basis for minimum wages at the state level. The report says that the new wage floor has been calculated by taking into account various requirements, including daily intake of 2,700 kilocalories per day. In principle, this is a welcome move. Ensuring a minimum subsistence wage to all workers should be the most important mandate of labour laws in any society. But there is good reason to exercise caution in either celebrating or dismissing the move.
India’s existing labour law regime is celebrated neither by workers nor employers. The former hold that most of the regulations meant to protect them are never implemented in reality. The latter see it as a disincentive to modernise and expand production. In an economy that is overwhelmingly informal, implementing something like minimum wages is always going to be more difficult than announcing it. Then, there is the regional asymmetry in labour markets. Richer and labour scarce-states have much higher minimum wages than the poor and labour abundant. These differences have largely evolved through market mechanisms rather than successful implementation of wage floors by the State. What is even more complicated is the market for skilled and semi-skilled workers. And the difference between contract and permanent workers. Even in organised industries, workers doing almost similar jobs can get drastically different wages, depending on whether they are contract or permanent workers. Then there is the question of a lack of skilled workers, which is often a complaint made by employers. Such challenges are far more difficult to solve by legislation.
Fixing a fair minimum wage can only be the starting point towards putting in place a pro-worker and pro-employment labour regime. The new wage code, when it comes, should be judged holistically rather than on the basis of what it wants minimum wages to be.