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. It has led to considerable concern among the policy makers, employers and trader unionists. While employers in the public as well as private sector appear to view wage rise as detrimental to economic growth, unions demand periodic wage increases for neutralizing the effects of inflation and sharing the gains of productivity growth. Workers in factories engaged in manufacturing and processing activities constitute an important single group of organized labour. The term wages is not a simple as it appears, and some of the disagreement that arises in discussing wages is due to the fact that people are talking about different things. Most wage earners have an hourly rate of pay, usually referred to as the base rate, but this is not necessarily the amount which the workers actually receive. Many people work on a piece work or incentive basis, under which the amount they receive depends on how they produce. Under an incentive system a worker is expected to earn a good deal more than his base wage rate- indeed, it is the expectation which gives him the incentive to maintain a high rate of output. The worker is interested in how much he actually receives in his pay envelope, and in how much this money will buy. His weekly take home pay is influenced not only by total hourly compensation, but how much of this comes in the form of cash rather than benefits, by the number of hours worked per week, and by the size of deductions for social security, personal income tax, and other purposes. Because of these additional factors take home pay can change considerably even without any change in hourly compensation. It is not difficult to understand why wages do play such an important and controversial role in labour relations. For workers, wages are income that establishes a standard of living, from the viewpoint of the company, wages are a cost of production. And here is the heart of the wage controversy. On the one hand, employees press for higher and higher wages with the objective of raising their standard of living; on the other hand, employers are confronted with increasing pressure on the cost of production. When wages are a significant element of cost of production, when wage increases are not offset by such economic phenomena as increased efficiency, and when the union has been unable to extract equal wage concessions from all competitive firms, wage increases tend to place the firm in an undesirable economic position. A company so placed might not be able to survive
It appears that wage rates were a result of a process of bargaining and time and work were the two major considerations in their determination. There is a rise in productivity of labour or 2. He said if it is labour that creates wealth. Smith could accord a central role to the theory of value precisely because he was able to identify the problem. Malthus offered an explanation of the supply side of labour that population is limited by the means of subsistence and suggested that the spurt in population can outstrip availability of resources like food unless this was checked. Under such a stage of affairs. as today. Mill and Ricardo developed the concept of subsistence further to contend that wages tend to equal the minimum wage subsistence level of the labourers . Workers in the past. According to Adam Smith it is labour in general that proclaims the sole source of wealth i. a brief review of the transition can help understand its dimensions in todays perspective.e.s individual members.. could plunge them into economic oblivion. According to the ancient authorities wages were the consideration for the performance of a contract of service entered into between an employer and a workman. Wages in fact depended on the bargaining capacities of both the employers and the workers. instead of advancing the standard of living of its members. Who put forward the labour theory that the full value of any commodity is the amount of labour it can buy. His analysis conceived of labour as an undivided homogenous mass. The number of productive workers increases compared to other members of society. were employed for wages and wages were central to the problems of industrial peace in those days as well. union wage policy. the entire labour of a nation is distributed over the different branches of production and divided up between society. One of the first wage theories came from Adam Smith. WAGE THEORIES: While it is not intended to trace the entire history of evolution of wage theories. then increases in the latter can take place under one of the following conditions:1.for long in the competitive struggle.
Neo classical economists were able to introduce the element of labour capital substitutability. The classical economists explain the demand side of the wage theory by treating the wage goods as a fixed wage fund and the supply side in terms of labour availability which is expected to be influenced to an incremental extent by the amount of extra wage fund available over the minimum subsistence outlay so that equilibrium is conceived only at the minimum subsistence level. The real wage rates equated with marginal productivity are adjusted to whatever level of employment is generated at a given level of consumption and investment. This theory popularly known as the “Iron Law of Wages” did not envisage increases in the means of subsistence which would enable the vicious circle to be transcended and rested on static assumptions oblivions of demographic transition processes which generate far reaching changes through the impact of cultural forces on population growth. the questionable assumption of a fixed fund almost akin to idle savings cannot satisfactorily explain wage levels at a time when investible resources are often realized through an appreciation of market conditions with market borrowings. . However in development economies unemployment is attributable largely to shortage of investible capital which is influenced in small measure by public policy. they assumed a vertical supply curve for labour. Further since wages represent only a chain in the flow of resources. In the Keynesian model.since the amount of wage goods available for distribution determines the average wage rate which can stabilize only at the minimum subsistence level. While the Neo classicals continued to retain the downward sloping demand curve for labour. the wage rates are determined in the labour market but the volume of employment is determined by forces outside the labour market. Marx accepted the ideas of Ricardo and Mill and a them of Marxian Wage Theory is the reserve army of unemployed which is supposed to depress real wages to the minimum subsistence level.
on the basis of data from 1861 to 1957. It is quite likely that in underdeveloped countries wherein unemployment prevails on a very large scale. 2. Phillips of London School of Economics. Wages and Unemployment The Phillips Curve: A. If an employer cannot maintain his enterprise without cutting down the wages of his employees below even a bare subsistence or minimum wage. 1. Minimum Wage: No Industry has a right to exist unless it is able to pay its workmen atleast a bare minimum wage. unorganized labour may be available on starvation wages. and the smaller the excess supply of labour is the greater the rate of growth of money wages. If they had expected a higher rate of inflation they would also have expected larger wage increases. concluded that there is a strong inverse relationship between the rate of money wage increase and unemployment rate. he would have no right to conduct his enterprise on such terms. The reason lies in the price wage feed back. The Supreme Court has taken specific positions on some of the basic wage concepts.3. The immediate impact of a given unemployment rate on the rate of wage increase will differ from its effect over a longer period. Wage Concepts: Wage concepts have historically evolved from the state policy as well as the judgements of the Supreme Court. This relation has been tested and confirmed many times over the United States and other countries.W. At any moment workers will be anticipating a certain rate of inflation. but the employment of labour on starvation wages cannot be encouraged or favoured in a modern democratic welfare state. The greater the excess supply of labour market is the less the rate of change of money wages is to be. Living Wage: It would be obvious that the concept of living wage is not a static concept it is expanding and the number of its constituents and their respective contents are bound to expand and widen with the development and growth of national economy. That is why it would be impossible to . A curve exhibiting this relation is called a Phillips Curve.
must be paid irrespective of the extent of profits. bonus and fringe benefits. out in in deciding this question the proper approach to adopt would be to consider whether the wage structure in question even approximately meets the legitimate requirements of the components constituting the concept of a living wage. This minimum wage is independent of the kind of industry and applies to all alike. It sets the lowest limit below which wages cannot be allowed to sink in all humanity. The financial conditions of the establishment. or the availability of workmen or lower wages. dearness allowance. While the basic wage has some relation to the economics of the . A fair wage is thus related to the earning capacity and workload. clothing. and the ‘living wage’ which is the goal. though in some cases living wages may be paid. For that purpose it may not be essential to determine what in terms of money these constituents would denote in the context of today. however. Broadly speaking the first principle of wage determination is that there is a minimum wage which in any event. that is to say. sufficiently high to provide a standard family with food. It must. Components of Wage Payment Wage payment in India consists of basic wage. The second principle is that wages must be fair.attempt the task of determining the extent of the requirement of the said concept. shelter. Looking at the problem of industrial wages as a whole it would not be possible to predicate that our wage structure has reached even the level of a fair wage. and education to children appropriate to the workmen but not at rate exceeding his wage earning capacity in the class of extablishment to which he belongs. ‘Fair wage’ lies between the minimum wage. which must be paid in any event. It is possible that even some employers may be paying a very high wage to their workmen. be realized that ‘fair wage’ is not ‘living wage’ by which is meant a wage which is sufficient to provide not only the essentials mentioned above but a fair measure of frugal confort with an ability to provide for old age and evil days. Indeed it may be true to say that in an underdeveloped country it would be ideal to describe any wage structure as containing the ideals of a living wage. medical care. and in such a case it would be necessary to examine whether the wage paid is approximate to the standard of living wage.
price increases. As a consequence. On the contrary.A. has been introduced through the Minimum Wages Act. The Supreme Court in its judgment in the Bengal Chemical and Pharmaceutical Works Ltd. MRP relates marginal physical productivity (MPP) to average product price. the other wage components are much less influenced by internal than by external variables. 1969 provided a set of principles to be followed in paying DA. The basic wages are related to the systems of wage payment in an organization. The extent to which the wage rate gets determined is dependent on the marginal revenue productivity of labour (MRP) which is the contribution of revenue made possible by employing one more unit of labour. 2. however.A. When. The intervention of external variable introduces a certain degree of uncertainty in formulating an internal wage policy. no definite estimation of size of outlay on D.A. the MRP tends to shift even with a constant MPP. Dearness Allowance: It has been estimated that around 80% of employees in manufacturing industries are covered by one system of Dearness Allowance or other. Basic Wage: The basic wage rate is clearly dependent upon the internal relationship between wages and productivity. for example. 1948. managements do not have a completer control over wage costs. the employer may not be in a position to increase the wage rates unless productivity increases. The relationship between productivity and wages therefore is complicated by the product market situation such that under monopoly an employer may be in a position to raise the wage rate. While the study group on wage policy set up by the National Commission of Labour estimated the proportion of D. 1. to wage bill at about 30%. These principles are:- . whereas under perfectly competitive situation the employer cannot do so.. Even in the unorganized sector the principle of D.firm. such as government regulations and inflationary trends in the economics. It is in this sense that even without an increase in productivity it should be possible for an employer to increase the wage ratio without incurring losses. the Employers Federation of India estimated the proportion in the manufacturing sector at 39%. where the product price cannot be increased as under perfectly competitive situations. There is.
irrespective of whether they are working as clerks or members of subordinate staff or factory workmen. any change in the method of bonus computation may lead to complications in working capital management. The basis of fixation of wages and dearness allowance is industry cum region. According to the Bonus Review Committee the concept of bonus is form of profit sharing which had the incidental advantage of acting in effect as a supplement to wages. It may be useful if the companies could also . management plan company budget for bonus payments on the basis of existing legal provisions. Any increase in the quantum of minimum bonus may have an adverse effect on the liquidity of inefficient or marginally efficient firms. Employees getting the same wage should get the same dearness allowance. it should ordinarily be on a sliding scale and provide for an increase in the rise in cost of living and a decrease or a fall in the cost of living. The additional financial burden which a revision of the wage structure or dearness allowance would impose upon an employer and his ability to bear such a burden are very material and relevant factors to be taken into account. In view of the historical ambivalence regarding the concept of bonus. Consequently the planning of working capital requirements and its management through the financial year becomes complicated. such sharing in prosperity augments their earnings and so helps to bridge the gap between the actual wage and the need based wage. these came to be established. 1965. This has also the advantage that in the case of low paid worker. The impact of bonus on managerial decision making is felt through the uncertainty regarding the amendments to the payment of Bonus Act. The purpose of dearness allowance being to neutralize a portion of the income in the cost of living. Bonus Payment: The Bonus Commission viewed the concept of bonus as sharing By the workers in the prosperity of the concern in which they are employed.a) Full neutralization is not normal given. except to the very lowest class of b) c) d) e) employees. With each ordinance the element of uncertainty gets further reinforced. 3. In highly efficient firms. This Act has undergone several changes in the past.
labour legislation has imposed statutory requirements. profit bonus. The problem although complicated. As a result of the growth of unionism. and Employees Provident Fund Act. housing. . The statutory benefits are supplemented by a number of other provisions such as paid festival holidays. Even during the early years of industrialization the employers were contributing to the welfare of the workers. Such benefits are the result of social development in recent years. and medical assistance which are paid on a voluntary basis. Its rationale for doing so is based on the following arguments. Factories Act. Adjudication: The Government labour policy supports compulsory adjudication system. According to Reid and Robertson. the scope of the term fringe benefits depends in part on whether cost to employer or payment to employee is used as the criterion of definition. there is a vagueness about the definition of fringe benefits. the cost the cost of occupational pensions and employer contributions to various types of welfare plans. METHODS OF WAGE FIXATION The managerial prerogative of setting terms and conditions of employment is increasingly being limited due to either the emergence to trade unions or active intervention by the State. 4. collective bargaining has become an important method of wage fixation. 1. may still lend itself to the managerial practice of planning under uncertainty. but in recent years. It is believed that fringe benefits are probably more important as costs and thus include holiday pay. Despite the fact that fringe benefits are now being increasingly provided by the employers in most industries. sick pay. Provident Fund and Bonus Schemes in Coal Mines. even though state intervention. The welfare legislation includes the Workmen’s Compensation Act. adjudication machinery and wage boards retain their primacy in the wage system. Employees State Insurance Act. Fringe Benefits: Fringe benefits have by now become an important part of the wage system.provide for expected changes in the law in their budgetary estimates for the year.
the statutory wage board having functioned more or less as a tribunal – were ordered. True. railways. although not fully qualifying for the status of national unions. collective bargaining may not result in an equal trial of strength between the unions and the management. the central organization of labour were in no sense national unions for any industry. d) It was felt that in the absence of compulsory adjudication the state would be handicapped in maintaining industrial peace. At the same time the establishment of four central organizations of labour to which unions operating in different industries in different regions were affiliated. Unions were no longer confined to the workers of one establishment.a) It was feared that collective bargaining might result in work stoppages and slowing down industrialization. c) It was assumed that the trade unions were still weak at the plant level and therefore. First it is doubtful whether . A few large unions covering units in many states as in banks. With the growth and consolidation of trade unionism. insurance companies. This trend would have spread to most of the other industries and employments had not the demand for the setting up of wage boards eclipsed the importance of compulsory adjudication. ports and so on. e) It was hoped that compulsory adjudication would result in terms and conditions of employment which may be considered fair and objective by both workers and employers. While the adjudication has helped in evolving socially desirable concepts of wage determination. That was the reason why all India adjudications such as those in banks. posts and telegraphs. Wages adjudication in the early days was mostly confined to disputes in individual establishments. The concept of a representative union for an industry in an area gradually took shape. in colleries and in the case of working journalists. was a direct impetus to the widening of the scope of trade union action. b) It was held that strikes would be used as a weapon by the policically motivated trade unions disrupting the industrial relation system. also lent powerful support to the demand for all India wage determinations. but the heavy dependence on them of numerous weak local unions necessitated their seeking all India settlements of wage problems. adjudication of wage disputes arising in a single establishment lost much of its importance. it cannot be said that it has been able to arrive at just solutions to problems of industrial relations.
This has cost a lot both to Unions and management. The Second Plan emphasized that a more acceptable machinery for setting wage disputes will be one which gives the parties themselves a more responsible role in reaching decisions. b) to work out a wage structure based on the principle of fair wages as set forth in the report of the Committee on Fair wages. Generally. and it has eroded the scope for constructive relationship between them at the plant level. Dissatisfaction with the lengthy procedure and frustration over the result drove workers and their organizations more and more away from determination in which they themselves might have a effective voice. a consumer representative and an independent chairman. clerical. Second. 5. supervisory. namely inordinate delays and unsatisfactory results. the Board shall keep in view the need for fixing a minimum (fall back wage) and also to safeguard against overwork and undue speed. etc) who should be brought within the scope of proposed wage fixation. a wage board is a non-statutory body. The terms of reference have generally been on the pattern of those fixed for the wage board for the cotton textile industry:a) to determine the categories of employees (manual. In applying the system of payment by results. It may be noted that the wage board is tripartite in character and usually consists of an equal number of representatives from employers and unions. The concept of wage board was first enunciated by the Fair Wages Committee. an economist. . It was commended by the first Five Year Plan. c) to bear in mind the desirability of extending the systemof payment by results. Wage Boards: Compulsory adjudication fell into disrepute primarily for two reasons. because of compulsory adjudication a litigatory approach is being adopted towards wage determination. They are seen as general guidelines for determination of wage rates at the plant level.the courts possess competence in rule making although they might have been useful in the interpretation of the rules themselves. its recommendations do not therefore have the effect of an award binding on both sides. The system of wage boards seemed to give them the opportunity they were seeking so earnestly.
Collective Bargaining: Reviewing industrial relations in 1931. although disputes did take place on account of interim relief’s. The proliferation of small trade unions with wholly inadequate financial resources and the increasing rivalry among unions have greatly weakened the movement. At the same time there have been other factors tending to discourage the growth of collective bargaining. yet it could not operate efficiently primarily because of a lack of coordination among the wage boards. An important implication of the wage board system was the growth of industry level federations of both employers and unions. the Royal Commission on Labour could detect only one instance of collective bargaining which was that of Ahmedabad ‘Plague Bonus’ towards the end of 1917. there has been a phenomenal growth of the trade union movement. Since the wage board recommendations affect both management and unions. it is in their own interest to strengthen their respective federations and to provide comprehensive information to these federations for an efficient discussion at the wage board level. such growth has not been matched by a corresponding gain in strength. This method had the rudiments of an industry level bargaining process. It received encouragement from two factors. Though. judged by total membership figures.The Sinha study suggests certain implications for wage structure and industrial relations. inter-firm and inter-industry wage differentials tended to decline. either the customary skill differentials were allowed or such differentials were widened. It was found that while wage rates increased even the weaker units were not adversely affected. On the contrary. wage disputes were not generally raised during wage board deliberations. After independence collective bargaining has received both encouragement and discouragement. It is obvious that the wage board method of wage fixation has clearly failed to evolve a consistent set of guidelines to be followed at the plant level. Wage board recommendations had significant implications for industrial relations. In general wage boards were not in a position to base their recommendations on job evaluation. . namely the growth of trade unionism and change in attitude of employers. 6. Consequently. Moreover.
“Although collective bargaining. both management and union participate in their regulation. But there is no precise information on the subject. organization and collective bargaining is to be accepted without reservations as the fundamental basis of the mutual relationship. The emphasis in Webb’s analysis was on end result. the bargaining power on the two sides would determine the point at which the equilibrium is attained.. The bargaining power is conditioned by the . and that it is becoming an increasingly important factor in the settlement of wage disputes. though at a slow pace.. While economic factors provide the outer limits. as it is known and practiced in India. It refers to the joint regulation of terms and conditions of employment. The phrase “Collective Bargaining” has its origin in the writings of Sydney and Beatrice webb. Another important factor that has come into the way of collective bargaining is the increasing tendency on the part of the Goverments to refer industrial disputes to tribunals for adjudication and to set up wage boards of the present pattern for drawing up wage structures on an all India basis. there is hardly any connected information still on the number and nature of collective agreements entered into by management and labour in the country year after year. is virtually unknown in India as a matter of principle it was accepted for usage in union management relations by the state…. Despite such pulls in opposite directions. The first plan observed. and thereby reduce to the minimum occasions for its intervention……. there is no denying the fact that collective bargaining has gained ground after independence.This has discouraged employers from earnestly pursuing the path of negotiating and bargaining. Collective bargaining could be said to be having the following feature:a) Collective bargaining is a process which involves both economic and political factors. The workers right of association.wage agreement.The endeavour of the state has all along been to encourage mutual settlement collective bargaining and voluntary arbitration to the utmost extent. Though there has been considerable improvement in the scope and coverage of official statistics in the field of labour since the commencement of planning.
b) Collective bargaining need not be restricted to a situation where labour’s gain becomes employer’s loss. The union management negotiations follow certain pattern. c) The conclusion of the process depends crucially on the attitude of both parties. both parties could help in increasing productivity which could result in gains to both. Accordingly changing positions is at the heart of the collective bargaining process. On the contrary. and the external support that each party could muster. e) Discussion of the package. WAGE POLICY IN INDIA The framing of a wage policy for any country involves the taking of specific stand on various aspects of the economic development of the country. At each stage the change of position is accomplished through surprise. the field of bargaining is extended to include not only issues but problems also. The following stages identified by Dunlop and Healy my follow each other or be interspersed. In the latter case. These attitudes are largely based on the past and present relationship between the two parties. The symposium on Wage Policy issues held by the International Institute for Labour studies in October 1967. which can best be done only through consensus arrived at in an organized manner. and signing of the agreement itself. d) Off the record meetings of representatives of the two parties to formulate a package which is likely to find support with the constituents of both parties. and the way in which the negotiator handles these problems distinguishes a skilled veteran from a novice.the establishment of certain bodies. offers the best prospects of . observed: “…. drawing up of the memorandum of agreement. make shift and improvisation of both sides. the economic conditions of the organization. suitably constituted and at the appropriate level. a) Presentation of formal demands by both sides.representative nature of the bargainers. b) Exploration of demands and arguments presented by the other side. c) Informal discussions to ascertain the areas where some concession may be possible and the development of possible packages for the constituents of both parties.
To a large extent the economic situation of a country dictates the kind of wage policy that governments in the developing countries are compelled to follow. 5. 7. or a consortium made up of the interested parties. and therefore. A highly centralized policy of wage control or a decentralized wage policy with the government becoming involved only when the national interest requires it. The ILO defines the “Wage Policy” to mean “Legislation or government action calculated to affect the levelor structure of wages. While sectional interests tend to pull in their different directions. A wage policy ignoring wage structure or. especially a rice policy related to the essential wage goods required by workers. The linking or delinking of wages with productivity. . Priority for equity among incomes over economic growth. the determination of minimum wages and differentials by government authority.formulating an agreed. 3. or both for the purpose of attaining specific objectives of social and economic policy. 4. consumers etc. 2. A national policy is. like trade unions. Alternative wage policy makers either the government or a special group of experts. An increase in wages such a Pareto income optimality is ensured. 6. Low wage with high employment. a policy concerned to raise the level of wage incomes as well as rationalize the wage structure. Reliance on wage legislation to ensure wage policy. or high wages with low employment. 9. Linkage of wage policy with price policy. as interpreted by those responsible for the governance of the country for the time being. 8. alternatively. in effect an essay in balancing sectional interests and in reconciling them with national interests to the greatest extent possible. it should be the aim of a national policy to advance the interests of the country as a whole. and effective wage policy for a developing country. acceptable. managements. The different alternatives are as below:1. Workers and employers have their own legitimate sectional interests to sustain and safeguard – interests which need not necessarily coincide with national interests as a whole.
In the ultimate analysis. The context delimits policy choices. d) growth dividend. e) Dearness Allowance.This involved working out a grade structure based on skill differentials and fixation of wages for each grade. Nevertheless. is essential to reverse the trends of creeping inflation. and resistance of wage differentials. inequalities of incomes are bound to remain for many more years to come.socialistic or no socialistic pattern of society. the total wage receivable by a worker or an employee may be made up of the following: a) Minimum wage. Within this frame. the Chakravarti Committee had suggested a National wage structure on administered wage system…. low productivity growth stagnant or falling real earning.It must be emphasized here that the objective of giving the worker ‘a fair’ or ‘due’ share of the national income. c) Compensation for exceptional hazards for their exceptional disadvantages. f) Share in Profits. Keeping in view the need for uniformity in wage payments across regions. under the circumstances now prevailing in most under developed countries. The problem of capital accumulation must on an analytical plane be clearly separated from the problems of giving the worker his due share in the factory output or from the still more different problem of reducing inequalities of income. wage policy in India cannot remain an exclusive policy. All the problems cannot be solved simultaneously for they conflict with one another. In this structure. Wage Policy has therefore to focus on the key concept of productivity. whether we like it or not. wages lagging behind productivity. it has to be a part of overall government policy. b) Skill differentials depending on the grade. and rising unemployment. According to Saheb Dayal a proper understanding of the cost -productivity price and wage-productivity price relationships. there is one redeeming feature: influence of productivity on wage trends and wage structure. . The fact of the matter is that. the wage policy has to recognize the facts of life. but is even incompatible with it. industries and occupations. trade union influence. and thus reducing income inequality is not only different from the objective of providing him with the basic necessities of life. or by incorporation of the net factory output.
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