The Code on Wages Bill and Universal minimum wage

The cabinet recently approved The Code on Wages Bill, which proposes to make minimum wages a statutory right for all citizens. The Bill proposes a monthly minimum wage to be set across India, which will be binding on all the states. Once it is passed, the states cannot set a minimum wage lower than the one set by the Central government.

Features of the Bill:

• The proposed Code on Wages will subsume four extant Acts: the Minimum Wages Act of 1948, the Payment of Wages Act of 1936, the Payment of Bonus Act of 1965 and the Equal Remuneration Act of 1976. The Bill is aimed at reducing disparity in minimum wages across geographical regions and sectors.
• The Bill recognizes that a universal minimum wage across India and across different sectors does not work and proposes that the minimum wage set can be augmented based on the skill required, the arduousness of the work assigned to the worker, geographical location of the place of work and other factors which the appropriate government considers necessary.

Positive consequenses

• The bill would help generate employment and attract entrepreneurs, he said, adding that there were 44 labour laws which were being clubbed in four codes and the bill introduced today deals with the code on wages.
• The Bill recognizes that a universal minimum wage across India and across different sectors does not work and proposes that the minimum wage set can be augmented based on the skill required, the arduousness of the work assigned to the worker, geographical location of the place of work and other factors which the appropriate government considers necessary.
• The Bill does mention that the new national minimum wage is applicable to both the organized as well as the unorganized sector, this will help reduce exploitation of workers in unorganized sector help securing other statutory benefits.

Negative consequences

• Indications that it will be significantly higher than the current wage rate. This will invariably result in either retrenchment of employees or a significant slowdown in new hiring or both.
• Seminal work by Nobel Prize winning economist George Stigler concludes that a minimum wage does not satisfy its original intentions—elimination of poverty—and will tend to increase unemployment and reduce family income.
• 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.
• It is appreciable that the Bill recognizes differences in geographical locations and nature of work, but allowing for such variations on a case-by-case basis can lead to lobbying.
• Companies to bypass price control will prefer to hire contractual labour or keep a majority of their workforce in the informal sector so as to avoid paying the new minimum wage.
• Implementation of minimum wages for the unorganized sector has always been problematic and the Bill does not specify any details of how it proposes to fix the implementation gaps.
• Possibility of accelerated automation as a result of higher minimum wages. Companies would replace labourers, who are now more expensive, with machines that are more efficient and less expensive in the long run.

Conclusion:

The proposed hike in minimum wages is an obvious attempt on the part of the government to be seen as pro-poor and employee-friendly. But if the government really wants to help both the current crop and the future generation of employees, it should solely focus on easing labour laws, facilitating formalization of the economy, and focus on reducing regulatory hurdles for businesses.

By: Abhipedia