Economics Prelims cum Mains

Needed: a well-designed minimum wage system

In News:

  • The Economic Survey noted that a well-designed and streamlined minimum wage system is required to reduce wage inequality in the country.

News Summary:

Current Minimum wage system in India:

  • Complex system:
    • Currently, the minimum wage system is dealt with under the Minimum Wages Act, 1948.
    • It is a complex system, with 1,915 different minimum wages defined for different job categories across States.
  • Does not cover all workers:
    • Despite the complex system, many of the workers are not enjoying minimum wage.
    • For instance, the 2018 International Labour Organisation (ILO) report found that one in every three wage workers in India is not protected by the minimum wage law.
    • The ILO report found that domestic workers were covered under minimum wage laws in only 18 States and union territories.
  • Wage bias towards sectors with mostly men employed:
    • The ILO report also notes that while the law did not discriminate between men and women, analysis of different wages showed a bias.
    • For instance, women dominate in the category of domestic workers while men dominate in the category of security guards. While both these occupations fall within the category of unskilled workers, the minimum wage rate for domestic workers within a State is consistently lower than that for the minimum wage rates for security guards.

Economic Survey recommendations:

Simple, coherent and enforceable system:

  • A simple, coherent and enforceable Minimum Wage System should be designed with the aid of technology.
  • This is needed as minimum wages push wages up and reduce wage inequality without significantly affecting employment.
  • An effective minimum wage policy is a potential tool not only for the protection of low paid workers but is also an inclusive mechanism for more resilient and sustainable economic development.

Dynamic minimum wage system:

  • The survey suggested that a mechanism for regular adjustment of minimum wages should be developed, similar to countries like Montenegro, Netherlands, Uruguay and Costa Rica.
  • A national-level dashboard at the Centre that States can access and update should be developed.

Code on Wages Bill:

  • The government is already in the process of bringing the Code on Wages Bill in Parliament. The code will bring together the Minimum Wages Act, 1948, the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976 into a single legislation.
  • The survey said the rationalisation of minimum wages proposed by the Bill should be supported.
  • The Bill should extend applicability of minimum wages to all employments/workers in all sectors and should cover both the organized as well as the unorganized sector.
  • Minimum wage based on skill and region:
    • The survey said that the Code on Wages Bill should consider deciding minimum wages based on skill, with different wages for unskilled, semi-skilled, skilled and highly skilled, and on region.
    • Since India is a large and complex country, the survey suggested that centre should explore if it can be divided into five wage zones for better wage management.
    • The government should then notify a national floor minimum wage that can vary across five geographical regions. Thereafter, States can fix their own minimum wages, but not lower than the floor wage. This would bring uniformity in minimum wages across the country and reduce distress migration.

Grievance redressal:

  • An easy to recall toll-free number to lodge complaints about non-payment of minimum wages should be publicised.


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: