THE GIST of Editorial for UPSC Exams : 12 JULY 2019 (Wage imbalance (The Hindu))

Wage imbalance (The Hindu)

Mains Paper 3: Economy
Prelims level: Wages bill
Mains level: Requirement of wages bill

Context

• Last week, the Union cabinet approved the revised version of the Code on the Wages Bill.
• The bill envisages a national minimum wage, linked to factors such as skill level and geographical region.
• This national wage would effectively serve as a floor wage, with states having the option of setting higher wages.
• Minimum wage legislation forms a vital component of the architecture for social protection.
• A well designed minimum wage system, as articulated in the Economic Survey 2018-19, can help “reduce inequalities in income, bridge gender gaps in wages and alleviate poverty”.
• It could also help address the imbalance of power between workers and employers.

Steps needs to be taken by the government

• The government must carefully think through the consequences of this move for the very constituency it seeks to address.
• There is concern that if wages are pushed up, without being linked to productivity, companies will respond by hiring fewer workers.
• In a country where preference for capital intensive production is well documented, despite the abundance of labour, a high minimum wage may further skew the capital-labour ratio.
• It is also likely that companies will try to circumvent the system by opting to route part of their workforce through informal channels.
• By pushing up costs, a high minimum wage could erode competitiveness, making certain segments economically unfeasible.
• Coming at a time when India is struggling to find ways to boost exports, especially those of labour intensive sectors such as garments, such a move might have unintended consequences.
• And while the bill has proposed to take into account regional variations, wage differences across regions could impact labour mobility.
• Then, there’s also the structure of the labour market in India to consider.
• The duality of the labour market, characterised by the presence of a large informal sector 93 per cent workers are in the informal economy according to the latest Economic Survey suggests that enforcement is likely to be problematic.

Way forward

• It is also true that with little bargaining power, workers are being squeezed, and that the government must intervene to address this.
• Though the share of workers’ wages in gross value added has risen to 12.7 per cent in 2016-17, up from a low of 9.2 per cent in 2007-08, it remains well below levels seen in the early 1980s.
• But it must be asked whether, for serving the goals of equity and justice, a high minimum wage is the best way forward.
• Lowering the costs associated with formalisation, creating more flexible labour laws, might be a more prudent approach.

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General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) With respect to Pradhan Mantri Gram Sadak Yojana (PMGSY-III), consider the following statements:
1. It involves consolidation of through routes and major rural links connecting habitations to Gramin Agricultural markets (GrAMs).
2. The funds would be shared in the ratio of 60:40 between the Centre and State for all States except for 8 North Eastern and 3 Himalayan States for which it is 90:10.

Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both
D. None

Answer: C
Mains Questions:
Q.1) Income inequalities must be reduced. But a National Minimum Wage may have unintended consequences. Comment.