Index

• Introduction
• Objectives
• Methodology
• Government Policies for Minimum Wage Rate
• Concept of Minimum Wages
• How Minimum Wage is Calculated in India
• Setting of Minimum Wages
➢ Collective Bargaining
➢ Statutory Regulations
• Regional Imbalances and Their Causes
• Conclusion
 Introduction

The minimum wage rate is an important tool for the proper

functioning of the market structure as it can help to regulate and
control the efficiency of labor in the market.

It is a policy measure implemented by various governments of the

world to help the worker class who are otherwise in many senses
exploited by their employers. Minimum wage can be the lowest
amount of remuneration that an employer should pay to his workers
in a particular industry and below that amount a worker cannot sell
his labor in the market. Minimum wages can help to secure a
dignified status for the workers without having many negative
implications in the market if the minimum wages are set at an
efficient and proper level.

In India, the system of minimum wages was implemented very early

as compared to other developing nations by the Minimum Wages
Act, of 1948. From then onwards the government is trying in various
sectors to control and regulate its functioning properly. It also is
amending and bringing new rules and regulations for its proper
implementation as it is a concern for the government and also the
nation's economy.

There are also various international organizations that are setting

up general rules for the implementation of minimum wage policies
in various countries. Many such organizations that are working at
the international level for the upliftment of the conditions of workers
are setting some guidelines to improve the conditions of workers at
the global level.

However, in India, there are some issues concerning the

implementation of minimum wage policy. India is in its own very
complex structure in cases of its diversities in various fields. And
thus, to implement such a policy across the nation is very difficult
for both the central as well as state governments because there are
disparities within a state.

Thus, the concept of minimum wage is very essential to understand

for the development of our economy and also the nation and the
government should put more efforts and try to find some solution
for the efficient implementation of minimum wage policy in India.

Objectives

● To understand the basic concepts of minimum wage rate.

● To analyze the role of minimum wage rate in India.
● To understand government policies to regulate the minimum
wage rate in India.
● To understand causes of regional imbalance due to minimum
wage rate in India
● To provide a solution to deal with the problem of minimum
wage rate.
 Methodology

Minimum wage can be defined as the lowest amount of

remuneration which is required to be paid by the employer to his
workers during a particular period of time for the labor provided by
the employee and which is fixed by the government and cannot be
altered by any contract or any agreement between the employee
and the employer. The minimum wage can be set by any competent
authority, a statute or any wage board or council, or by any labor
tribunals or courts. Most of the countries in the modern era have
started the practice of minimum wages by the end of the 20th
century.

The primary purpose of the implementation of minimum wages is to

protect the interests of workers against the payment of unduly low
wages by their employers for their labor. It will also help provide
equal treatment to all and the fruits of the labor can be disturbed
equitably and just in nature which will lead to the overall progress of
the society. This will help for the upliftment of the workers class
and who are in a need of such protection to protect their own rights.

This policy implemented by nations will also help to overcome

poverty and inequality among the masses, and also lessen the gap
of inequality of wages between men and women as this policy will
provide wages according to the value of your work which will be just
and fair in nature. Now more than 90% of the world have adopted
the policy of minimum wages in their country.
The concept of minimum wage can be well understood with the
demand and supply model of economics. It depicts various
consequences of the implementation of minimum wages. It can be
understood with the help of demand and supply graph which is
shown below:

In this analysis of minimum wage by demand and supply curve is

the basic example of price floor set by the government. Here, on the
Y-axis it shows the wages paid to the workers and on the X-axis, it
shows the number of workers employed. The demand curve depicts
the number of workers a firm or company would like to hire. When
the wages of the workers are higher, the company will have to pay
more for it and as a result it will prefer to hire less workers. Thus,
we can see that the demand curve is sloping downwards. The
supply curve represents the number of workers who want to work in
a particular industry at a fixed wage rate. It is clear that if the wages
for a particular work increase, more people will be willing to join the
particular industry and thus the supply of labor in the market
increases. Therefore, the supply is sloping upwards.
In this diagram, there is an equilibrium at point e where the demand
and supply curve intersect. At this point, the quantity of labor
supplied in the market at a particular wage rate will be equal to that
quantity of labor demanded by the company. Thus, in this situation
there is no problem of unemployment. However, when we add a
minimum wage and increase the wages of workers from w to w1,
there is a shift in the demand and supply of labor in the market. The
demand for workers in the market will reduce as the employers will
not be able to pay extra wages to a large number of workers as
before. And also, the supply of labor in the market will increase as
more workers will be willing to work at this level of increased
wages. Therefore, such a situation creates a problem of
unemployment which will be equal to Q2-Q1, that is, the extra supply
of labor in the market.

Thus, in this model to understand the concept of minimum wages,

we can analyze that as we set a minimum wage rate above the
equilibrium level prevailing in the market, this will also lead to some
problems in the system. We may also receive some benefit as the
supply of labor increases. The employers will have a choice among
them and they can select more skilled workers for the jobs but this
will lead to a problem of unemployment particularly in the unskilled
and less professional sets of workers. The living conditions of the
workers who will be employed will get better by the increase in their
wages and the problem of poverty among this class will reduce to a
large extent. But the problem will definitely increase for the
unemployed workers after the implementation of this policy. One
more problem that will increase for the working class could be the
extra burden of taxation as we will increase the wages of these
workers and thus the income will increase.
So, we may find that the policy of minimum wage rate as we have
discussed is somewhat beneficial to the worker class but it also has
some backdrops as it mainly creates the problem of
unemployment. Still, this policy is being implemented by the
majority of the nation states because overall it leads to the
development of the conditions of the working class.

Government Policies for Minimum Wage Rate

Foreign businesses in India can have a challenging time

comprehending and calculating the minimum wage as they differ in
every state, and are categorized under multiple criteria, such as
region, industry, skills level, and nature of work.
The minimum wage has for a long time been regulated under the
purview of the Minimum Wages Act, 1948. This will now be subject
to the provisions of the Code on Wages Act, 2019, which was
notified in August 2019.

In fact, the Code on Wages Act replaces four labor regulations –

Minimum Wages Act, 1948; Payment of Wages Act, 1936; Payment
of Bonus Act, 1965; and Equal Remuneration Act, 1976.
The new wage code prohibits employers from paying workers less
than the stipulated minimum wage. Further, minimum wages must
be revised and reviewed by the central and state government at an
interval of not more than five years.
 Concept of Minimum Wages

According to the International Labor Organization, "Minimum wages

have been defined as the minimum amount of remuneration that an
employer is required to pay wage earners for the work performed
during a given period, which cannot be reduced by collective
agreement or an individual contract." In defining minimum wage, it
is important to be specific as to what components can come under
preview of minimum wage rate, the extent under which payment in
kind is allowed, how minimum wage is calculated and whether
minimum wage rate amount is according to wage/hours or
wage/month.

Purpose of minimum wage rate is to protect workers against unduly

low pay, it ensures that profit is shared justly with everyone and no
one is enriched at the expense of others and a minimum wage to all
who are employed and in need of such production. These types of
policies help lower strata of society and offer them protection and
try to secure a minimum amount of payment to give these workers
a sense of protection to uplift them from clutches of poverty and
reduce inequality, between all pre-formed social classes and
indifference between men and women.

Minimum wage rate should be defined in such a way to provide

support or help to other social uplift mentioned policies, including
collective bargaining which are contracts comprising clauses of
working hours, pay and working conditions.
According to different countries and their different policies, the
minimum wage rate is diverse all around the world. There are many
approaches which are possible to calculate depending on the needs
and policies of various countries.

Some countries like the United Kingdom have one fixed minimum
wage rate across the whole country but some countries like Canada
and India have minimum wage rates for different regions of that
country.

● In countries like the United Kingdom, it is easy to operate,

communicate and enforce but they offer less scope to operate
and change it for various regions and various sectors of the
country according to special needs of that particular sector. It
upholds the principle of equity above anything else.

● In countries like Canada and India, there is a more complex

system and it is tailored to the circumstances prevailing in
various regions of that country depending on the ideology of
that region. This type of system does not have effectiveness
and often leads to confusion and disagreement between
workers and sellers.

Sometimes minimum wage rates lead to imbalances between

various sectors and influx and efflux of workers from one region to
other. There is also a link between equal pay for equal value of that
work which can be less for low experienced workers, and a view to
stop their entry in that sector.
Minimum wage rate should also leave some space to determine
wages from bargaining between employer and worker.

How Minimum Wage is Calculated in India

It must be noted that India’s minimum wage and salary structure

differs based on the following factors: state, area within the state
based on development level (zone), industry, occupation, and skill-
level. This offers foreign investors a range of options when
choosing where to locate their set up.

India uses a complex method of setting minimum wages that

defines nearly 2,000 different types of jobs for unskilled workers
and over 400 categories of employment, with a minimum daily wage
for each type of job. The monthly minimum wage calculation
includes the variable dearness allowance (VDA) component, which
accounts for inflationary trends, that is, the increase or decrease in
the Consumer Price Index (CPI), and where applicable, the house
rent allowance (HRA).

As mentioned earlier, the calculation of the minimum wage factors

in the skill-level of the worker and the nature of their work. Broadly,
workers in India are categorized as unskilled, semi-skilled, skilled,
and highly skilled. The minimum wage rates across Indian states
and union territories must therefore be regularly tracked as they are
subject to periodic changes, especially for the variable and
dearness allowance rates.
 Setting of Minimum Wages

Setting minimum wages is a critical and time-consuming process. If

minimum wages are too low, it will not have any considerable effect
on the lives of vulnerable people but if minimum wages are too high
it can create a surplus of labor–unemployment–and decrease

Balanced minimum wage will not only provide support to people

working minimum wages but also increase the economy in a
country. It is evident that the government should make laws which
take care of both parties and should be revised from time to time to
increase their validity. It is also essential that the effect of minimum
wage rate should be monitored closely and if it is not in consonance
with what the government intended it should be amended to provide
proper support to people.

There are various ways of setting or fixing of minimum wage rate --

COLLECTIVE BARGAINING
Countries rely on employers and workers to agree on conditions
between them. For example, the amount of wage, work conditions,
the role of the government is to provide a framework for these types
of negotiations. There are only a few countries that rely on
collective bargaining for fixing the minimum wage rate. In most
countries collective bargaining is insufficient in protecting the
interest of workers and their protection from bad working
conditions and low wages. Therefore, in many countries,
governments have adopted statutory minimum wages in addition to
those set through collective agreements.

STATUTORY REGULATION
In statutory regulations, the government makes every effort,
ensures full consultation and has direct participation on the basis of
equality in establishment of minimum wage rate and operation of
the system.

It provides policymakers with important information for effective

policy design, improves the chances and therefore effective
implementation of policies and advances social and industrial
peace and stability by minimizing misunderstandings and tensions.

Regional Imbalances and Their Causes

After 1990, India’s GDP witnessed a sharp growth due to LPG

(Liberalization, Privatization and Globalization) although there was
doubt as to whether this growth would lead to further inequality
between various regional disparities like it was among the states,
and regions within the states, between urban and rural areas, and
between various sections of the community. Rapid growth
witnessed in this period had not reached all parts of the country and
all sections of the people in an equitable manner. Re-addressing
regional imbalances had indeed been a vital objective of the
planning process.

However, despite the efforts made, regional disparities have

continued to grow and the gaps have been accentuated as the
benefits of economic growth have been largely confined to the
better developed areas. Paradoxically, it is the natural resource-rich
areas which continue to lag behind. This has in turn tightened the
stranglehold of the Naxalite movement and demands for division of
states in these areas. With the removal of controls and the opening
up of the economy to external forces, the pressure of market forces
may tend to exacerbate inter- and intra-state disparities. The role of
the Central Government in promoting equity among states and
regions, therefore, has assumed added importance in the post
liberalization era.

Redressing regional disparities is not only a goal itself but is

essential for maintaining the integrated social and economic fabric
of the country without which the country may be faced with a
situation of discontent, anarchy and breakdown of law and order.
There is probably no easy answer to the question of what really
drives the growth process in the states. In the early years of
planning, attempts were made to control a large part of the key
drivers of growth and to make them fit into an overall consistency
framework. This covered not only fiscal variables, but also other
areas such as credit and financial markets, physical investments,
locational decisions, and the like. However, this approach has now
long since been given up. Over the past several years, the share of
public investment in the overall investment made in the country has
been steadily declining. In recent years, public investment has been
a little over 20% in the aggregate.

Conclusion
In contrast to many claims that location does not matter in a
globalized and highly connected world with decreasing transport
costs and improved communication technologies, this report
provides evidence that rather the opposite seems to be true,
particularly in a knowledge-based economy. Regional differences in
economic activity are largely due to an innovation sector that is
gaining in importance and that tends to be more concentrated
geographically compared to traditional industries. This is causing a
polarization between regions. Whereas innovation hubs are
increasingly able to attract innovative firms and high skill
concentrations, other regions are left with economically depressed
industries and a low-educated workforce. Overall, this thesis
demonstrates that the well-being in a knowledge-based economy
increasingly depends on where you live rather than your personal
characteristics. More generally, inequality in advanced economies
to a large extent reflects a geographical divide.

In India, some states’ growth and development are more advanced

than others which causes imbalance as people, factories, and
investors are more concentrated in those areas than in developed
areas; this could be stopped with the proper imposition of law made
by the government of India by law that of ILO. The government has
to make a uniform minimum wage rate or wage rate with less
difference between various regions to harmonize the distribution of
workers all around the country.