A bill for the goodwill of workers or the contrary? -ForumIAS Blog

Context:

The government introduced in the Lok Sabha ‘The Code on Wages’ bill which seeks to empower the Centre to fix a “universal minimum wage” aimed to benefit over 40 crore unorganized sector workers.

Explanation:

The cabinet on 10^th August, 2017 approved the Code on Wages Bill, which proposes to make minimum wages a statutory right for all citizens.
The Bill which was tabled in Parliament in the 2017 monsoon session, 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.
Though the actual minimum wage is yet to be set by the Central government, there are indications that it will be significantly higher than the current wage rate.
The proposed Code on Wages will subsume four extant Acts:

Other key features of the Bill:

As per the Code, the government will determine minimum wages every five years.
The fixing of the wages and revisions henceforth will be done by setting up “any number of committees and sub-committees” as deemed necessary by the government.
As per the Code, the government will determine minimum wages every five years.
The government will fix the national minimum wage for different states or areas.
The government will also fix the number of hours of work per week including a day of rest.

Utility of the proposed Bill:

Even though there were laws like National Floor Level Minimum Wages (NFLMW) but these laws failed to make any major difference in the fiscal conditions of the workers in the country since it is only suggestive in nature and has no statutory backing.
Thus to bridge all the gaps, the Bill is aimed at reducing disparity in minimum wages across geographical regions and sectors.
Once the code on wages is passed in Parliament, it will apply to the entire working population of the country and there will be no scheduled or non-scheduled employment categories which is currently prevalent.

Views of economists on the Bill:

Economists have denounced the proposal of a universal national minimum wage, saying that it will lead to more mechanisation and thus cause a fall in employment.

Even though the fear of automation has not gripped developing economies like India yet, but is looming large in the background.
Companies would replace labourers, who are now more expensive, with machines that are more efficient and less expensive in the long run. As for Example:
Many retail outlets like Wal-Mart Stores Inc. replaced cashiers with self-checkout machines and restaurant chains like McDonald’s Corp. replaced cashiers with apps and ordering kiosks.
Thus, 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.

The recent experience of the Goods and Services Tax Council, where many industries lobbied for lower tax rates, should be indicative of the lobbying possibility for setting lower minimum wages.

Economic theory and evidence also suggest that a price control of any sort will lead to the creation or expansion of the underground or black market.

In the labour market, this would mean that companies 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.

The Bill does mention that the new national minimum wage is applicable to both the organized as well as the unorganized sector.

However, 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.

To conclude, a minimum wage does not satisfy its original intentions i.e. elimination of poverty but will tend to increase unemployment and reduce family income.

Suggestions:

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.
Governments should maintain balance between workers’ rights and industrial growth by legislation.
The reforms need inclusive growth, so that its various implications on laborers are also addressed.