WAGE POLICY

PRESENTED BY :
ADITI MITRA
GUEST FACULTY IN HR
IMIT - CUTTACK
 WAGE POLICY
o According to ILO, the term “Wage Policy” refers to legislation of government action
undertaken to regulate the level or structure of wages or both for the purpose of
achieving specific objectives of social and economic policy.
o The social and economic aspects of wage policy are normally inter-related measure
inspired by special considerations; inevitably have economic effects and action designed
to achieve specific economic result has social implications.
o Principles which act as guidelines to determine a wage structure are called as wage
policies.
o Although an organization can take some guidelines from the public policy, while
formulating its wage policy and subsequent strategy, an organization has to take care of
a number of factors such as ongoing rates of wages in the market, its ability to pay,
internal and external relativities, controlling of labour costs, motivation of workers and
rate of productivity.
 CONTD.
The ILO has enumerated the following objectives of a wage policy in
developing countries:
a. To abolish malpractices and abuses in wage payment.
b. To set minimum wages for workers whose bargaining power is weak because
they are unorganized or inefficiently organized, accompanied by separate
measures to promote the growth of trade unions and collective bargaining.
c. To obtain for the workers adjust share in the fruits of economic development,
supplemented by appropriate measures to keep workers’ expenditure on
consumption goods in step with available supplies so as to minimize inflationary
pressure.
d. To bring about a more efficient allocation and utilization of manpower through
wage differentials and, where appropriate, systems of payment by results.
 WAGE POLICY
o In this regard, the major factors that may affect the wage policy of an organization and which need to
be paid due attention at the time of formulation of organizational wage policy are as follows –
1. Internal equity
2. External equity
3. Productivity
4. Cost of living
5. Motivation level of workers
6. Pay vis-a-vis performance
7. National wage policy
8. Statutory obligations
9. Labour market conditions
10. Present rate of attrition of employees.
o Obviously, the wage policy may differ from one organization to another depending on the
status and context of the organization concerned.
 CONCEPT OF WAGE POLICY
o The wage policy of any country should be sound and rational from economic and social
point of view. A sound wage policy maintains industrial peace, satisfies both the
employers and the workers, increases the output of the firm and efficiency of workers,
reduces costs and maximizes profits. An unsound or irrational wage policy is always
condemned from social and humanitarian point of view. Such a policy leads to the
negation of the basic principles of social justice to the working community. Even from
the economic point of view, an unsound wage policy is condemned because it will affect
the efficiency of the workers. So it becomes necessary to pay the workers that amount of
wages which is considered to be ideal, fair or reasonable. Different concepts of wages
have been put forth for the purpose of framing a sound wage policy.
1. MINIMUM WAGES
2. FAIR WAGES
3. LIVING WAGES
 CONCEPT OF WAGE POLICY
(CONTD.)
o Minimum wage: The lowest wage, determined by law or contract that an employer must pay an employee
for a specified job. Minimum wages not only provide for the bare physical needs but also ensures some
fulfillment of basic needs such as education, health, and other things. Minimum wage levels are
determined either by law (Minimum Wages Act, 1948) or maybe the result of a wage settlement agreement
between employee and employer. The minimum wage is generally the lowest hourly, daily, or monthly
remuneration that employers must legally pay to workers.
o Fair Wage: Fair wages are somewhat above Minimum wage rates and aim to provide a “fair” wage for work
done. Fair wages take the form of adjustable steps that move up according to the capacity of the industry to
pay, and the prevailing rates of wages in the area of industry. Fair wages fall between the Minimum Wage
and a Living Wage and are related to productivity. Fair Wages also advocate the “equal pay for equal work”
philosophy, which says that work of equal skills or difficulty levels should receive equal or fair wages.
o Living Wage: Living wages can be defined as the wages that meet the normal needs of an average employee
in the course of everyday life. Living wages should ideally enable the worker to meet basic needs (for an
extended period of time or for a lifetime). These needs include shelter (housing) and other incidentals such
as clothing and nutrition. The Living wage theory says that wages should not only be fair but also be
sufficiently high to provide comfort and insurance against important misfortunes.
 WAGE POLICY –
KEY CONSIDERATION
1. End of Exploitation – To end exploitation and provide remuneration to capital and labour such
that “while in the interests of the consumers and the primary producers excessive profits should be
prevented by suitable measures of taxation and otherwise, both will share the product of their
common effort after making provision for payment of fair wages to labour, a fair return on capital
employed in the industry and reasonable reserves for the maintenance and expansion of the
undertaking” (Industrial Policy Resolution, 1948).
2. Differentials – To provide for wage differentials.
3. Regulation of Wages – To regulate wages and salaries to eliminate/reduce undue disparities.
4. Linking – To link remuneration to productivity.
5. Compensation – To compensate for increasing in cost of living.
6. Fixation of Minimum Wages – To fix a statutory minimum wages in selected industries and
promote fair wage agreements in the organized industries (Industrial Policy Resolution, 1948).
7. Equality – To ensure equal pay for equal work (Constitution of India).
 KEY CONSIDERATION
8. Determination – To determine fair wages over and above minimum wages with due
regard to-
(i) The productivity of labour.
(ii) The prevailing level of wages.
(iii) The level of national income and distribution.
(iv) The place of industry in the economy of the country.
9. Capacity to Pay – However, the Supreme Court ruled that ‘an employer who cannot pay
minimum wages has no right to exist’. The capacity to pay becomes a subject of
consideration to determine fair wages over and above the minimum wages.
10. Basic Needs – The basic needs of labour.
11. Living Wages – To secure a living wage for workers.
 OBJECTIVES OF WAGE POLICY
oIn India, wage policies aim to create a structure around the national wage
and salary system. The objectives of Government-regulated wage policies
are:
oPromote economic growth, employment, productivity, capital formation,
and price stability.
oRemove wage differentials between different industrial sectors.
oSet a minimum wage to ensure that workers in any industry or sector are
able to purchase the basic necessities of life.
oGovernment-set policies form the basic guidelines for organizations in
determining a wage structure.
 FACTORS INFLUENCING WAGE
POLICY
Factor # 1. Demand and Supply: If the supply of labour is abundant, workers will be ready to work
for lower wages. But if the supply of labour is scarce, workers will demand higher wages.
Factor # 2. Prevailing Wage Rates: Wages paid by one firm generally depend upon the wages paid by
other competing firms or by other firms in the same locality or by the industry as a whole for the same
type of work.
Factor # 3. Ability to Pay: The wage level of the organization largely depends upon the ability of the
firm to pay to its workers. The ability to pay, in its turn, depends upon the amount of profits earned by
the organization. Therefore, wages will be generally raised as the firm’s net profitability increases.
If the firm’s earnings increase beyond reasonable level of return on the capital employed, workers
claim that they are entitled to participate in the surplus profit. However, it becomes necessary first to
determine precisely the fair amount of profit.
Factor # 4. Productivity: It is argued that wages should be commensurate with the productivity of
the workers. Therefore, the higher the productivity, the higher will be the wage level to be paid to the
workers.
 FACTORS INFLUENCING WAGE
POLICY
Factor # 5. Cost of Living: Wages should depend upon the cost of living. Changes in cost of living therefore
lead to changes in the wage-rates. It is therefore desirable to increase wage-levels whenever the cost of living
rises. What is important is not the money wage but the real wage which actually satisfies the needs of the
workers. Hence money wages should be adjusted to maintain the real wages intact.
Factor # 6. State Regulation: Since workers’ bargaining power is weak, the State steps in to protect their
interest by regulating their wage-rates. The State, by enacting necessary legislation, guarantees minimum or
fair wages to workers so as to enable them to lead a decent standard of living.
Factor # 7. Job Requirements: Jobs differ in their responsibility and authority. Generally jobs requiring
higher authority and responsibility are paid higher wages. Similarly, jobs which require highly skilled workers
are also highly paid. Again, jobs which are very risky and dangerous (e.g. pilots) are also highly paid.
Factor # 8. Trade Unions: Workers who are well organized into trade unions are able to get higher wage-rates
whereas those who have not formed such unions are not able to get higher wage-rates.
Other Factors: Wage-rates also depend upon such factors as market conditions, prevalence of competition in
the market, bargaining power of workers and such other conditions.
 NATIONAL COMMISSION ON
LABOUR OR WAGE POLICY
According to the NCL, “The main aim of a wage policy, as we envisage it, is to bring wages into conformity with the
expectation of the working class and in the process seek to maximum wage employment”.
To achieve this, the NCL’s following observations may be noted:
(a) Wage policy should aim at the progressive increase in real wages. Sustained improvement in real wages can be
brought about by increasing productivity.
(b) The wage levels will have to recognize that in India modern capital-intensive, large-scale sector exists side-by-
side with the small and traditional labor-intensive sector.
(c) ‘Wage policy’ should therefore foster an appropriate choice of techniques so as to maximize employment at
rising levels of productivity and wages.
(d) The incomes and wage policy that may be formulated has to take into account the structural feature of the
national economy.
(e) In the unorganized sector adequate governmental or quasi-governmental machinery may be necessary to
provide for minimum wage regulation according to conditions in different workers in weak position.
(f) In order to protect real wage from erosion the level of money wages has to be adjusted to price changes.
 OBJECTIVES OF NATIONAL
WAGE POLICY
The importance are of wage policy is obvious as it forms a highly sensitive and complex
dimension of labour policy and influences employee’s level of motivation, morale,
productivity and standard of living. Its importance has been recognized by the
Constitution of India. The provisions in the Indian constitution and the policy statements
in successive five-year plan documents provide useful insights into the Government’s
approach towards wage policy.
The second National Commission on labour recommended the appointment of a high-level
committee with technically competent people including economists, trade unionists,
entrepreneurs and consumers to formulate a national wage policy.
The term “Wage Policy” refers to the legislation or Government action undertaken to
regulate the level or structure of wages or both, for the purpose of achieving specific
objectives of social and economic policy. According to ILO, the wage policy means
“legislation or government action calculated to affect the level or structure of wages, or
both for the purpose of attaining specific objectives of social and economic policy”.
 CONTD.
In India, the objectives of a national wage policy may be stated thus:
a. To provide a minimum wages to workers employed in sweated industries.
b. To improve the existing wage-structure.
c. To fix wage ceilings.
d. To accelerate export promotion.
e. To control inflationary tendencies.
f. Other objectives.
i. To bring social justice to workers and equal opportunities of personal development-through the development
of the socialistic pattern of society as laid down in Directive Principles of State Policy in the Constitution.
ii. To maintain industrial peace, which cannot be achieved only through statutory measures and ban on
strikes and lock-outs and compulsory arbitration.
iii. To provide guidance to various authorities charged with the task of wage fixation and revision.
iv. To develop the skill of newly-recruited industrial labor and other manpower resources.
 INDIAN WAGE POLICY
The policy statements in the successive five-year plans provide useful
insight in the Indian Wage Policy.
The 1st five-year plan recommended that :- Wages in public sector not
less favourable than in private enterprises. Permanent wage boards with
tripartite composition to be set up.
The 2nd five-year plan (1956-1961) stressed improvement in wages
through increased productivity, improved layout of plants & improvement
in management practices.
The fifth plan (1974-1979) recommended that the reward structure of
industrial employees in terms of wage & non-wage benefits must be
related to performance records in industrial enterprises.
 INDIAN WAGE POLICY (contd.)
The sixth plan (1980-1985) stressed the need to bring
about a greater rationalization in the wage structure & to
link wages to labour productivity.
The eighth plan (1992-1997) laid focus on formulation
of a wage policy relating to child labour, rural labour,
women labour, & inter-state migrant labour.
The eleventh plan (2007-2012) aims at generation of
productive and gainful employment, with decent working
conditions.
 WAGE POLICY IN INDIA
The enactment of :
Payment of Wages Act, 1936
Industrial Disputes Act, 1947
Minimum Wages Act, 1948
Equal Remuneration Act, 1976
Constituted Wage Boards that are tripartite in nature
Pay Commissions at the central and state level.
 LIMITATIONS OF WAGE POLICY
1. Enforcement – Enforcement in unorganized sector.
2. Rise in Prices – Prices rising is almost beyond government’s regulatory capabilities.
3. Wages versus Productivity – Wages lag far behind from the labour productivity.
4. Imbalanced Labour – Lesser number of workers in organized sector takes away bulk of wages
than unorganized.
5. Less Skilled Labour – Ever increasing addition to workforce yet death of skilled labour.
6. Shifting of Methods – High wages may force employer to shift towards capital-intensive methods.
7. Reduction in Capital – High wages brings a reduction in the capital for growth.
8. Increased Consumption – The nature of wage incomes are consumption-oriented rather than
savings-oriented so increased wages would mean increased consumption. Therefore, economic
growth may not be affected directly as it depends upon rate of investment possible with the medium
of savings.
THANK YOU