There’s a hole in the coverage

Jan 21 2013, 10:00 IST
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SummaryThe minimum wage system needs to be simplified and expanded

The minimum wage system needs to be simplified and expanded

Based on official statistics, the recent ILO Global Wage Report 2012-13 indicates that real wages are on a decline in India in the last few years. This raises the question of whether a statutory national or state-level minimum wage could be one of the mechanisms to ensure economic growth translates into improved incomes and is thus able to reduce poverty and inequality.

Interestingly, India was one of the first developing countries to introduce a minimum wage act in 1948. The minimum wage rates are set by the “appropriate government” (mostly state governments) for those employed in certain occupations (or “scheduled” employments). Initially, there were 13 scheduled employments. However, the “appropriate governments” were allowed to expand the list of “scheduled employment” if necessary. Over time, this has resulted in a total of more than 300 different types of scheduled employments.

It has also resulted in a complex system with a very large number of minimum wage rates (1,171, according to one recent count) which sometimes differ widely across states even for the same occupation. In spite of the large number of rates, not everyone is covered. The minimum wage is set only “in certain employments or occupations” and legal coverage is therefore incomplete. According to our own preliminary estimates, in 2009-10, only 68 per cent of the overall wage workers in India were actually covered by any schedules of employment, and in the state of Haryana it was only about 50 per cent of workers.

India’s system of minimum wages has generated substantial criticism and debate. This garmented system does not convince everyone, and there seems to be a widespread view on the need to improve the coherence of this system. A.K. Ghose (“Should there be a national minimum wage in India?”, The Indian Journal of Labour Economics, 1997), for example, considers that “there is no justifiable basis for specifying different minimum wages for different types of activities so long as they all employ unskilled casual labour”. Another area of concern is linked to the difficulty of enforcing such a complex and numerous set of minimum wage rates. A number of observers have argued India simply does not have the administrative capacity to monitor and enforce all these different minimum wages.

So why not simplify the system and expand its coverage?

A number of committees have in the

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