Labour protests in Haryana led to revision of minimum wages by 35 per cent, which led to violent unrest in Noida, which then led to Uttar Pradesh government itself reworking minimum wages across districts. Good move for labour welfare, right?
Wrong, if you go by a new study released on Thursday afternoon, which pointed fingers at Indian states’ and their lopsided labour welfare moves that lead to a large chunk of them becoming legally unemployable.
Delhi-based think-tank Foundation for Economic Development (FED) found that more than 6 out of every 10 Indian labourer earned salaries below the minimum wage, and worse, for as much as half of all of India's workers, even given them a 30 per cent raise on the salary they are making right now would still be illegal, or in other words, would be less than the legally stipulated minimum wage.
The anomaly is on two counts – India’s state governments have set minimum wages at a range that is way higher and unfeasible considering India’s position on the GDP growth chart, making India instantly unattractive for international investment.
Even worse perhaps, since businesses cannot employ them legally since the minimum wage stipulated by the state government is higher than what they are ready to pay, what happens in practical situation is that companies hire workers informally, or through outsourcing contracts, meaning they are never considered part of the labour force, and hence left to the mercy of fate without any legal protection provided as per the government’s labour provisions. “The share of Indian workers with no contract, no PF, no legal protection is higher than Vietnam, Thailand, Bangladesh or Mexico,” the report pointed out.
“When the law mandates a wage above what a worker's labour can produce, employers cannot simply pay more. They adjust — and the adjustment travels in one direction,” the report warned.
When adjusted for per capita income, India’s minimum labour wages are also way higher compared to key exporting competitor countries such as China, Vietnam, and Bangladesh. Minimum wage in India is also on average about 1.7 times the median wage for a casual worker. In countries like the US, Japan, Korea, or the UK, this multiple is 0.26-0.60, implying that the Indian figure is 3 to 7 times higher.
There are larger repercussions here, stretching all the way from employability and a place becoming attractive for foreign investment. For example, being 1.5 times higher than our rivals in garnering global investment in manufacturing (read: jobs) means it “prices our exporters out of the labour-intensive sectors and jobs the country most needs,” the report notes.
What may on paper seem like welfare and fairness actually amounts to incompetence and a larger disadvantage to the labour force themselves.
"The evidence is clear: well-intentioned wage floors prevent workers from getting opportunities that would improve their lives,” said Rahul Ahluwalia, founding director of FED which prepared the study, adding, “If nearly half of our workforce cannot be legally hired even after giving them a 30 per cent raise, then the minimum wage has backfired".
The report has some contentious suggestions, including relaxing the minimum limits and allowing workers to freely negotiate their wages (the report does not per se mention unionised negotiations, though). “Since this is a politically sensitive subject, in the meantime governments should use wage subsidies instead of further minimum wage hikes. This will support higher pay without reducing the demand for workers and without making low-skilled hiring unviable. Further, government should allow flexibility in the national floor wage to reflect different regional realities and to prevent pricing poorer states out of formal job creation,” a statement issued by FED mentioned.