Code on Wages Bill, 2019

Context

  • The new Parliament passed the Code on Wages Bill, 2019 mandating a minimum wage across the country in its first session itself.

Concern with the Bill:

  • This law mandates a universal minimum payment of 178 a day. There is some excitement and lots of disappointment all around. For one, the wage prescribed is less than half the 375 a day recommended by a high-powered labour ministry panel. It is also miles away from the 700 fair wage that the 7th Central Pay Commission had arrived at.
  • The justification for a marginal increase is that this  ₹178 is now a definitive minimum for all workers, and will be universal across the country, across all sectors. It will, therefore, allow for wages to rise in informal sectors and will address the issue of gender-based disparities as well.

About the Issue:

  • It is widely acknowledged that India has a serious wages problem. According to the Periodic Labour Force Survey 2017-18, 45% of regular workers (those who are in the relatively stable, formal sector) are paid less than the minimum wage.

Need for labour law reforms:

  • Indian industry is shackled by a number of socialist-era laws that prevent Indian companies from becoming competitive: workers cannot be fired, organization structures are not flexible, transfer policies are not nimble enough, and a high human resource cost prevents companies from growing bigger. More than 45 central laws and at least 100 state-level legislations create confusion, complexity, and chaos. The burden of compliance is huge is the conventional wisdom.
  • The process of determining the minimum wage is complex to say the least. The level of compliance too is abysmal. It is to address these issues that this new law was passed.

Origin of minimum wage:

  • The debate on minimum wages started 80 years ago in the US when the Federal minimum wage was fixed at 25 cents an hour. In 2009, the wage went up to $7.25 a year.
  • India’s minimum wage system, according to the Economic Survey 2018-19, comprises of 1,915 minimum wages defined for various scheduled job categories across different states in the country.

Challenges ahead:

  1. The Indian government has chosen to increase minimum wages and push costs to businesses. The Centre will set standards and define minimum wages across industry, including for small businesses.
  2. Given our diversity, this will not be easy.
  3. Beyond the complications that such calculations bring, the government must grapple with costs and requirements changing significantly across the country, from the low-wage economy of Tripura to highly labour scarce areas like Kerala.
  4. It must also address questions on what constitutes fair wage and what defines a living wage.
  5. In India, small and unorganized businesses employ more than 90% of the workforce, an estimated 500 million people. This may lead to the threat of harassment from labour officials.
  6. 50% of the workforce is self-employed. Nearly 30% work on a causal basis, approaching the labour market in bursts and spurts. The new code therefore will actually only work for 20% of the total workforce. Even within this, more than half belong to very small enterprises that hire between one and five people. Making these tiny enterprises comply with new laws is, in any case, a tall order.

Need of the hour:

A single mandate on minimum wages will not be enough to tackle inequality. There are two other ideas that could possibly be introduced to address some of India’s persistent economic woes:

  1. Phelps idea of wage subsidies: Rather than state governments like Gujarat, Maharashtra, Andhra Pradesh and Karnataka mandating jobs quota for locals, they could actually provide wage support to companies, thus incentivising investment and local hiring, while keeping wage bills low for firms operating in competitive environments.
  2. The other idea comes from the labour ministry panel that had suggested a  ₹1,430 housing allowance for city-based workers. This would allow for labour mobility and address the housing concern.