Analysing the Efficacy of the Code on Wages, 2019
By Omkar Upadhyay
BACKGROUND
A national level uniform minimum wage rate has been always suggested and recommended throughout time. The ‘Bhoothalingam Committee’ of 1978 called for nationalisation of wages in order to remove wage differentials and wage disparities.¹ The National Commission on Rural Labour, 1991 also recommended the National Floor Level Minimum Wages in 1996, but it did not get any statutory backing, and thus it remained only as a suggestive principle lacking binding capacity. The idea has always been to ensure protection and welfare of the workers and labourers. Thus, in order to have a better wage policy, the Code on Wages Bill was introduced by the Ministry of Labour and Employment, which seeks to simplify the existing labour laws, while amalgamating and merging the existing ones. The Code subsumes four of the earlier wage acts namely: (i) Minimum Wages Act, 1948; (ii) Payment of Wages Act,1936; (iii) Payment of Bonus Act, 1965; (iv) Equal Remunerations Act 1976. Bearing the Code in mind, the Ministry of Labour and Employment constituted an Expert Committee on January 17, 2018 to undertake an evidence-based analysis, in order to arrive at the way of determining the methodology for fixing the national minimum wage covering all the workers.
EXPERT COMMITTEE RECOMMENDATIONS
The Expert Committee on ‘determining the methodology for fixing the national minimum wage’ submitted its findings on January, 2019. The committee while determining the national minimum wage, recommended that existing norms for fixing minimum wages, that is principles of the 1957 Indian Labour Conference and the 1992 judgement of the Supreme Court in Workmen v Reptakos Brett & Co.,² must be updated with the existing labour conditions. The previous three consumption units of a family must be now updated to 3.6 consumption units, giving considerations to changing circumstances. The Expert Committee, after going through the principles of ILC 1957 and 1992 judgement came to the conclusion that national minimum wages must amount to Rs. 375 per day (as of July 2018) which would be equal to Rs. 9,750 per month. This minimum wage must be setup irrespective of the sector of employment, skill or whether it is rural or urban.³
Apart from this, the Committee Report is also suggestive of dividing the nation into five different economic regions for the purpose of fixing of minimum wages. These divisions are to be made considering differences in socio-economic factors and labour markets. Additionally, the minimum wages must be set in round numbers in order to facilitate their estimation as well as for dissemination and enforcement purposes. The Committee also called for adherence to the provisions of the International Labour Organisation Minimum Wage Fixing Convention, 1970 (No. 131).
STANDING COMMITTEE ON LABOUR (2018–19), 43rd REPORT
The Code of Wages 2019 is a modified and, to a certain extent, amended version of Code of Wages bill of 2017, which was referred to the Parliamentary Standing Committee on Labour chaired by Dr Kirit Somaiya, for examination and suggestions. The Committee produced its report on November 19th, 2018. Various suggestions, recommendations and modifications were laid out in the Report with respect to the provisions of the Bill of 2017, such as simplification of the definition of ‘wages’ within the bill. The Report recorded the definition to be too lengthy and ambiguous and called upon the Ministry for its simplification. It also suggested to change the phrase “at an interval of five years” to “ordinarily at an interval not exceeding five years” as regards to the time period for the revision of minimum wages.⁴ The State governments must also be consulted before a final national level minimum wages has been instituted. Issue was also raised on the usage of the word ‘facilitator’. The Committee Report recommended that the term ‘facilitator’ must be replaced by ‘inspector’, so as to ensure that the wordings of the Act appear strict for better enforcement. This issue was ultimately resolved in the 2019 bill which made a provision for ‘inspector cum facilitator’ thereby giving weightage to the recommendations of the Committee.
SALIENT FEATURES OF THE CODE AND THEIR IMPLICATIONS
The Code on Wages, 2019 was introduced in the Lok Sabha by Mr. Santosh Gangwar, Minister of Labour on July 23rd, 2019. The Code subsumes the following:-
I. The Payment of wages Act, 1936;
II. The Minimum Wages Act, 1948;
III. The Payment of Bonus act, 1965; and
IV. The Equal Remunerations Act, 1976.
The Code of Wages is the first among the upcoming labour laws aimed to free India from archaic labour laws which had been hitherto proven, an impediment to efficient and standardised living for labours. According to the Ministry of Labour and Employment, the Code has been made after the amalgamation, simplification and rationalisation of the relevant provisions of the above-mentioned four Acts. Following points elucidates the salient features of the Code, along with their fallacies and implications;
The Ambit And Applicability Coverage Of The Code —
The code has been aimed to benefit approximately 500 million workers across the country.⁵ Although, the Act of 1948 was only applicable to scheduled employments, this limitation has been removed by the Code, thus making it universally applicable throughout the territory of India. The economic implication of this would be the progressive addition of more workers within the ambit of the Code, and increase in the consumption expenditure of the country, thereby resulting in aggregate GDP growth. Furthermore while the previous legislations were only applicable to contract-based organised employments, the Code of 2019 seeks to also cover individuals employed in unorganised sectors, which constitutes a bulk of India’s work force (roughly 92%).⁶ This is largely beneficial, as workers victimised by exploitation in the unorganised sectors of the economy, would now be entitled to enjoy almost identical benefits, at par with their counterparts in the organised sectors.
Minimum National Floor Level Wages —
National-level floor wages have always remained an objective by various governments, for removing variations and disparities in income distribution. The Code of 2019, offers a solution by providing that the Central Government would fix a national floor level minimum wage, below which an employer is not at liberty to pay an employee. However, contention arose when the final Bill of the 2019 Code did not accept the recommendation of the Expert Committee, which set the minimum wages at Rs 375. The Committee recommendation regarding the division of the country into five regional zones has also not been accepted, thereby still allowing the States to fix minimum wages as per their specific conditions and requirements. Though provisions has been laid down, stating that the State Governments who have stipulated minimum wages above the minimum floor wage, must not reduce it; no significant changes have been brought about by the Code. However, unlike the case of 1996, the national floor level minimum wages have finally received statutory backing.
The controversy, thus is in regard to the amount of floor level wage. While the Committee recommended Rs 375 as the minimum floor wage, giving considerations to food and non-food essential conditions, the Code sets the minimum wages at a much lower level, at Rs 178. While employers feel that even the lower stipulations are too high, the workers continue to demand for higher minimum wages, as high as Rs 700, as stipulated by the 7th Central Pay Commission.⁷ There could be two implications of setting up minimum wages, this low. First, the Code will suffer from similar fallacies as its previous counterparts. The conditions of workers may not improve significantly, and additionally, the rise in consumption expenditure as estimated, would not increase as planned. This is mainly because many existing wage rates were already above the stipulated floor wage. The second implication could be that although the stipulated floor wage amount is low, it enjoys pan-India uniformity, thereby limiting the possibility of different wages in different regions, for the same occupation. This may prevent the problem of economic migration and the resultant consequences, as have been discussed in the earlier parts of this paper. However, with such low minimum wages, better compliance from the side of the employers can be accepted, which would not have been possible if wages were set too high.⁸ Apart from this, the nation would be freed from difficulties arising as a reason of existence of about 2000 different rates of minimum wages.⁹
Fixing the Minimum Wages —
The procedure for fixing minimum wages has been specified under Sections 6, 8 and 9 of the Code. The earlier two methods, that is, the Committee method and the notification method, has been retained for the process of fixing and revising minimum wages. The earlier provisions of the Code, as stated in the Bill of 2017, were that the wages must be revised at an interval of five years. Such statutory wording would have given the defence to the Government for not raising the minimum wage before the expiry of five years. The economic implication here, would have been that the minimum wages would have thus become static and unresponsive to changing economic conditions, such as the price level of the economy. Therefore the final bill accepted the recommendations of the Standing Committee and altered the wordings to “at an interval not exceeding five years.”¹⁰ This eliminates the minimum time limit for revision of the minimum wages. Before fixing of the floor wage, advice of the Central Advisory Board comprising of all stakeholders: employers, employees, government representatives and independent persons, are required to be obtained. The Wages so fixed must take into account the minimum standard of living of a worker.
Definition Clauses —
The Code has received praises for the fact that it has consolidated various definitions of ‘wages’ and ‘workers’ present in different legislations. Multiplicity of definitions of wage has hitherto led to difficulty in implementation of various legislations and their respective measures.¹¹ The Code also distinguishes the definitions of ‘employee’ and ‘worker’. However, questions have been raised against such distinction. Prominent among them was Shri Tapan Sen, MP and member of the Committee, stating that the distinction has lead to confusion and has opened a loophole to allow exploitation at the hands of employers. Since there are ambiguities, misinterpretation would follow as a consequence.¹² In addition, despite the said distinction being made, the words are interchangeably used in the Act, thereby leading to further confusions. Similar contentions were also raised by All India Trade Union Congress (AITUC) stating that differences in definition would lead to discrimination between workers and employees. To this, the Ministry replied that definition of employee include workers and it is a subset of employee in the Act. The only reason why separate definitions have been laid down, is to include individuals involved in supervisory, managerial, and administrative work, also under the ambit of the Code. Conclusively, the Standing Committee recommended that a common and comprehensive definition must be given in the Code. However, this recommendations has found no place in the final bill of the Code.
Non Discrimination Clause —
The Code on Wages by way of Section 3 seeks to prohibit discrimination on the grounds of gender. Sub-section 1 provides that there shall be no discrimination for performance of same work or work of similar nature. The Bill of 2017 included non-discrimination only in case of payment of wages, however, as per the committee recommendations, it was added that there should also be discrimination for the purposes of recruiting employees (Section 3(2)(ii) ). This clause reflects the incorporation of the provisions of Equal Remunerations Act of 1976. While earlier the work of similar nature included similarity in skill, effort and responsibility, after Committee suggestions, experience was also added as an additional ground.
Payment of Wages —
To incorporate the provisions of Payment of Wages Act, 1936; a separate dedicated chapter has been added to the Code, starting from Sec. 15 to Sec. 25 (Chapter III). The form, time and deductions have been clearly specified in the code. A new mode of payment of wages have been inserted within the Code, namely by electronic mode, which was absent in the Act of 1936.
Payment of Bonus —
Chapter IV, namely Payment of Bonus, is a reflection of the Payment of Bonus Act, 1965. Although it exhibits prima facie similarity to the Act of 1965, in the Code, the limitations of certain employments have been lifted, and more beneficiaries are now included withinits ambit.
ECONOMIC IMPLICATIONS OF MINIMUM WAGES
The concept of minimum wages presents economists and policy makers with a paradox; low level of minimum wages would be insufficient to enable workers to have a standard and sustainable living, while higher level of minimum wages are opposed to by the employers, leading to discouragements in hiring and resulting in unemployment. This section analyses the economic implications of the setting up of minimum wages. There is no doubt that minimum wages are necessary, as in absence of the said, workers would be subjected to economic exploitation. But the issue for consideration, in this section, is the stipulated level of minimum wages.
Alan Krueger, a professor of economics noted that some employers cut jobs in response of high minimum wage rates and therefore minimum wages must be set at a moderate level.¹³ Thus what we can infer, is that the economic effects of minimum wages can be gauged by looking at the market demand & supply scenario of labour.
The above diagrams better illustrates the point. In Diagram 1, W1 represents the equilibrium wages, the one which is derived from the market forces of demand and supply. At this point there is neither excess nor shortage of labour. However, due to governmental intervention in imposing minimum wage as flooring, the equilibrium is disturbed. The supply becomes excess, over the demand. The second diagram (on the right) clearly shows how unemployment is created when a minimum wage higher than the equilibrium wage is fixed. This is particular seen in labour markets which are perfectly competitive and if there is a National Minimum wage above the equilibrium wage, there will be excess of supply. The cut in demand is due to increase in the cost of production, if minimum wages are set very high.
However, the problem of unemployment is not universal. The most vulnerable group is those who are unskilled. Gary Becker, A Noble Laureate has stated that higher levels of minimum wages will reduce employment opportunities for workers with few skills.¹⁶
In case of India, it is rather difficult to arrive at an equilibrium wage given the dynamic nature of the labour market. Thus, it becomes quite difficult to measure the efficacy of minimum wages on the Indian economy. However viewing the current level of minimum wages, that is Rs 178, it is quite clear that it will not have much impact on the labour market. This is because of the fact that it is quite lower than the average wages of India, which according to the ILO report is estimated to be Rs 247 ( Rs 122 in rural areas and Rs 384 in urban).¹⁷ In absence of a clear equilibrium wage and for the purpose of this study, it can be assumed that the average wages are equilibrium wages. Thus what the Code has proposed is significantly below the average wage of the country. It highlights the possibility that the minimum wage stipulation brought forth by the Code of 2019, may backfire and a reverse situation will arise wherein there will be a supply shortage in the market economy. But taking into account past experiences and contemporary situations, it would be observed that despite minimum wages being low, supply would not decrease given the lack of alternative avenues of earning; thus forcing workers to work on such level of wages.
[1] INDIAN WAGE REPORT, International Labour Organisation, p. 74, 2018 .
[2] 1992 AIR 504.
[3] REPORT OF THE EXPERT COMMITTEE ON DETERMINING THE METHODOLOGY FOR FIXING THE NATIONAL MINIMUM WAGE, Ministry of Labour and Employment, Government of India, p. 68, 2019.
[4] STANDING COMMITTEE ON LABOUR, 43RDREPORT, Ministry of Labour and Employment, p. ix., 2018.
[5] Yogima Sharma, Parliament Passes Wage Code Bill To Ensure Minimum Wage For Workers, Economic Times, https://economictimes.indiatimes.com/news/economy/policy/rajya-sabha-passes-wage-code-bill/articleshow/70501009.cms.
[6] REPORT OF NATIONAL COMMISSION ON LABOUR, Ministry of Labour and Employment. http://www.prsindia.org/uploads/media/1237548159/NLCII-report.pdf.
[7] Amir Ullah Khan, Why Minimum Wage Won’t Fix India’s Woes, https://www-livemint-com.cdn.ampproject.org/v/s/www.livemint.com/news/india/why-minimum-wage-won-t-fix-india-s-w.html.
[8] Yogima Sharma, Parliament Passes Wage Code Bill To Ensure Minimum Wage For Workers, Economic Times, https://economictimes.indiatimes.com/news/economy/policy/rajya-sabha-passes-wage-code-bill/articleshow/70501009.cms.
[9] PRESS INFORMATION BUREAU, 23rd July, 2019, http://pib.gov.in/newsite/PrintRelease.aspx?relid=192114.
[10] PRS LEGISLATIVE RESEARCH, The Code on Wages, 2019: Comparison of the Code with recommendations of the Standing Committee and the Code on Wages, 2017, http://www.prsindia.org/node/842679/chapters-at-a-glance.
[11] Supra note 9.
[12] STANDING COMMITTEE ON LABOUR, 43RDREPORT, Ministry of Labour and Employment, p.13 , 2018.
[13] Lauren Dixon, How Does the Minimum Wage Impact the Economy?,June 14, 2017, https://www.chieflearningofficer.com/2017/06/14/minimum-wage-impact-economy/.
[14] Effect of minimum wage on economic growth, inflation and AD/AS, https://www.economicshelp.org/blog/11503/labour-markets/effect-of-minimum-wage-on-adas/.
[15]The Effects of a Minimum Wage, https://saylordotorg.github.io/text_microeconomics-theory-through-applications/s14-02-the-effects-of-a-minimum-wage.html.
[16] Owen E. Richason, Economic Implications of Minimum Wage Implementation, https://smallbusiness.chron.com/economic-implications-minimum-wage-implementation-4940.html.
[17] INDIAN WAGE REPORT, International Labour Organisation, p. 13, 2018.
The author is Year II B.A., LL.B (Hons.) student at the Maharashtra National Law University, Nagpur.
Disclaimer: Any academic content published in Legis Sententia will be for informational and academic purposes only, and shall not be reflective of the views of the Department of Law, University of Calcutta or the Editorial Board thereof or any other institution, but only the views of the author concerned.
