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8/6/2019 ME 210 Deepak Prasad SectionD Assignment 2
1/5
Macro Economics
Assignment IIWage Determination in India
Deepak Prasad
PGP/14/210
Section D
8/6/2019 ME 210 Deepak Prasad SectionD Assignment 2
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Prasad
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D
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How wages are determined in India? Is it through collective
bargaining (union and firms) or by the employer or by bargaining
between employer and individual employee or take-it or-leave it-
basis or through any other mechanism.
According to the minimum wages act the definition of wages is means all remuneration,
capable of being expressed in terms of money, which would, if the terms of the contract of
employment, express or implied, were fulfilled, be payable to a person employed in respect
of his employment or of work done in such employment .
Some of the major factors t hat affect the level of wages are:
1. Organizations Ability to Pay 2. Supply & Demand of Labour3. Prevailing Market Rate 4. Cost of living5. Productivity 6. Trade Unions bargaining power7. Level of Skill 8. Job Requirements9. Managerial Attitudes 10. Living Wage
In India nearly 93% of the total workforce works in the informal or the unorganized sector.
The workers in the unorganized sector, work in different employments such as (i) contract
labour, (ii) construction worker (78 per cent are unorganised workers), (iii) casua l labour, (iv)
workers in small units -handloom, power-loom, beedi making, tanneries etc. (75 per cent of
workers in manufacturing are unorganised workers), (v) sweepers and scavengers, (vi)
employees in shops and (vii) workers in agriculture .
The workers in informal sector are distinguished from the w orkers in formal sectors in the
following way: a) in the organised sector activities are regulated by legislation, while that in
unorganised sector are not well regulated and b) workers in the organised secto r are
covered under social security legislations, while they do not cover the unorganised sector.
The organized sector enjoys better conditions of work, protection under labor laws, is better
unionized and most enjoy collective bargaining rights when compared to their unorganized
sector counter parts. Unorganized sector have limited level of protection & trade union
rights but varies across regions depending on the political climate in the state.
y Government workers enjoy high level of job protection, trade union representation
without collective bargaining rights.
y Public Sector workers enjoy trade union and collective bargaining rights.
y Private sector workers enjoy trade union and colle ctive bargaining rights like public
sector. Current trend is to move to non -union workplaces.
A brief history of the various legislation that has been enacted in India with regards to
wages is documented in the table below.
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y Table 1: Labour legislations influencing wages in the informal sector in India
Labour legislation Type of intervention
The Minimum wage Act, 1948To provide minimum compensation for work. Workers inscheduled employment to be paid minimum wage.
The trade Union Act, 1926
To enable workers of a number of small units to form
unions, who can bargain wages and other condition of work.
The Industrial Dispute Act, 1947To enable unions to raise industrial disputes on wages andthe conciliation machinery to inte rvene.
The Equal remuneration Act, 1976Assure equal wage to women for same or similar work.
The Payment of wages Act, 1936To regulate the manner of payment of wages and theirrealisation in case of non -payment.
y
Source: Das, K.S. (1998), Wage Policy Issues in the Informal Sector, The Indian
Journal Of Labour Economics , V 41(4), p 896.
Frame work for wage calculation:
Organized Sector:
The `day, `week and `month are the basic units for wages calculation - used in
combination.
Normal working week is five days (for government) five half days/ six days.
`Hour is generally not a unit for wage calculation. (In newer sectors like IT, ITES hour is
becoming a standard).
Wage payment is made monthly.
Unorganized sector:
`Day is the common unit of calculation. In certain cases piece rate wages is in vogue, as
well as hourly wages.
Agencies that are involved in collecting wage data in India.
Government:
Central Statistical Organisation.
National Sample Survey Organisation
Labour Bureau under Ministry of Labour, GOI.
Ministry of Agriculture Agricultural Survey.
Private:
Consulting companies keep track of executive remuneration.
METHODS OF WAGE DETERMINATION IN INDIA:
The present day wages are determined by the below mentioned
1) Recommendation of various committees and boards appointed by the central and
state governments
The institution of wage boards has come to be widely accepted in India as a viable wagedetermination mechanism. The boards have been successful infulfilling their primary object
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of promoting industry-wise negotiations and active participation by the parties indetermination of wages and otherconditions of employment.Wage boards are set up bythe Government, but it is not involved as much in the selection of the members of the wage
board. Members of the wage board are appointed by the consent of the employers and
employees. The members are usually nominees appointed by the employers and the labor
union organizations. The boards are chaired by Government appointed persons who
represent the public. The wage boards in India can be classified into two types
A) Statutory Wage Board: Helps in establishing the minimum wages and other standards of
employment which are legally enforceable.
B) Tripartite Wage Board: A body setup by discussions between the employers, workers and
the government to negotiate on wages, working hours and related conditions.
Wage board decisions are not final and are subjected to either executive or judicious review
or reconsideration by other authority or tribunals. The powers and procedure of wage boards
are same as industrial tribunals instituted under the ID act 1947
2) Pay Commissions:
First pay commission was appointed by GOI in 1946 to enquire in to the conditions of service
of central government employees. This commission in its report said that in no case should
they pay less than a living wage. The 2nd
pay commission was appointed in August 1957; it
examined the norms for fixing a need based minimum wage setup. GOI appointed the 3rd
pay commission in the 1970s which in its report expressed support for a system in which
adjustments of pay will occur automatically with upward movement in consumer price index.
The 4th pay commission came in 1983 to examine the structure of all central government
employees, including those of union territories, officers belonging to the armed forces and all
India service. Commission submitted a report that recommended drastic cha nges in pay
scale. The 5thpay commission 1996 made certain recommendation regarding restricting ofpay scales. The 6th pay commission was established in 2006 which submitted a report
suggesting revision of Pay scales of employees of Autonomous bodies.
3) Collective Bargaining:
Collective bargaining relates to those arrangements under which wages and conditions of
employments are generally decided by agreements negotiated between the parties. . One of
the parties is generally the Union of workers. The union s main agenda would generally be
the general level of wage rates, structure of wage rates and bonus, incentives etc. Broadly
speaking the following factors affect the wage determination by collective bargaining process:
y
Alternate choices and demandsy Institutional necessities
y The right and capacity to strike
In a modern democratic society wages are determined by collective bargaining in contrast to
individual bargaining by working. In the matter of wage bargaining, unions are primarily
concerned with:
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y General level of wages
y Structure of wage rates (differential among occupations)
y Bonus, incentives and fringe benefits, administration of wages
4) The capacity of the industry to pay and afford wage increases:
This basically relates the wages with the cost of production of the industry and at the same
time the threat that an increase in wage might pose to the revenue and profits of the industry.
5) Regional Wages prevalent in the region:
This is one of the most important factors effecting the wage determina tion, especially the
minimum wages. This is as per the recommendations by the National Commission on
Labour.
6) Prices and Productivity:
For any industry the cost of production, its productivity level determines the revenue and
profits that it earns. This in turn affects the capacity of the industry to pay wages.
7) Preserving Real Income:
This principle basically involves changes in wages following the inflation changes in the
country. Further this also includes the concept of Basic Minimum Wages an d comparative
wage justice.
8) The capacity of the economy:
This basically deals with the macroeconomic impacts on inflation, competitiveness, other
parameters affecting internal and external balance as well as the affect on business profits
and investments resulting from the changes in the wages.
9) Time to time Judicial Pronouncements :
The Supreme Court interferes from time to time and puts in various conditions that need tobe taken care of for setting wages.
References :http://www.scribd.com/doc/31537418/Wage-Determination-in-India
Report Of The National Commission On Labour
Wage Determination in a Labor Surplus Economy: The Case of India