On the 10th of August this year, there was news that the Cabinet introduced the Code on Wages Bill in Parliament. The Bill proposes inter alia that a minimum wage and also the timely payment of this minimum wage will become a statutory right for all citizens. The current Minimum Wage act does not extend to everyone, and this Bill aims to correct that: every citizen will now be covered.
This is part of the long-awaited labour law reform whereby the Government is attempting to rationalize labour law into four comprehensive codes namely Code on Wages, Code on Industrial Relations, Code on Social Security and Code on Occupational Safety, Health and Working Conditions.
The Code on Wages will unify into one composite whole the Minimum Wages Act, the Payment of Wages Act, the Payment of Bonus Act and the Equal Remuneration Act and thereby make them redundant. This Code also specifies that the individual States will not be able to set a minimum wage lower than the one set by the Central government. If however, the minimum wage of any State is more than that promulgated by the Central Government, then that higher wage will have to continue to be paid and the State in question will not be able to lower it.
Though the proposed figure for the minimum wage is yet to be set, by the central government, Rs 18000 per month was widely being talked about as the new universal minimum wage.Considering that, if one could make a generalization about the minimum wage presently being paid in various industries in Pune being not higher than Rs 8000 per month, the jump proposed is huge. The govt, however, hastened to clarify that no specific amount has been fixed and that the minimum wages will vary from place to place depending upon skill required, arduousness of the work assigned and geographical location.
This raises many issues. The first is that it is surely going to be welcomed by the people actually receiving the current minimum figure. However, on the downside, the following points also need to be considered. The first is the probability that many of the current employees in units employing less than 300 people (a current proposal of the Maharashtra Govt, which is not going to be dealt with here) will be retrenched (without obtaining permission from the state Govt, as this will no longer be required, under the talked about Maharashtra proposed possible amendment of the ID act) and rendered jobless due to cost considerations. The new minimum will also impact those employers who today are making very low profits and convert them from barely viable to unviable. Which means that the economy will be adversely be impacted.
As readers are probably aware, economic theory suggests that any price floor (such as a minimum wage) which mandates how low a price can be set, usually results in the excess supply of that good or service. The work of Nobel Prize-winning economist George Stigler seems to show that the objective of elimination of poverty is not achieved, but rather that such a move will reduce family income and increase unemployment. Economic theory also suggests that price control of any kind will lead to the creation of a black market. Which raises the question of implementation. While canvassing in the lead up to the last general election we were told that the inspector raj would end. However it has not ended, and this move does not seem to signal that the government is serious about that assurance. If anything the contrary seems to be true in this matter as the rampant corruption that is unfortunately ingrained in our systems will probably get worse.
What then does all this mean? The lead up to elections is normally the time when the party in power and those in opposition dish out sops or promise the moon if elected to power. One interpretation of this move on a national minimum wage is that the government means well, and is making an effort to deliver on its last election manifesto. Another interpretation is that the next general election is just around the corner. Take your pick.
All views expressed are those of the author, not of SIU or SCMHRD or of Director Sheorey.
Dr. Philip Coelho