“LABOUR, like all other things which are purchased and sold, and which
may be increased or diminished in quantity, has its natural price and its
market price. The natural price of labour is that price which is necessary to
enable the labourers, one with another, to subsist and to perpetuate their
race. While, the market price of labour is the price which is really paid for
it, from the natural operation of the proportion of the supply to the demand.”
-- David Ricardo
David Ricardo, the economist
of 18th century who advocated against the interference of
legislation in market mechanism also acknowledged the concept of minimum wages
(a contemporary term to Ricardo’s ‘natural
prices’). The discussion of minimum wage concept is in the need of the hour
at a time when the government of Kerala has found itself in the midst of
flaring debates from sections standing for and against minimum wage. There has
also been a view that the government has over interfered in wage regulation
which has distorted the market mechanism. If then, what is the role of the
government in regulating wages of the workers? Where should the government draw
a line in order to ensure the safe functioning of the market mechanism and at
the same time, prevent its citizens from facing the adversity of market
competition? This require a critical analysis of what is the real purpose of
implementing minimum wages and how minimum wage should be differentiated from
the wages set by the market.
Minimum wage could be
defined as the wage necessary to enable the labourers to subsist himself. It is
the lowest daily or monthly remuneration that employers may legally pay to
workers. Minimum wages depends on the price of food and other necessary
commodities consumed by the worker depending upon his habits and customs. When
the price of the commodities increase, the minimum wages of the workers should
increase and vice versa. In other words, the minimum wages should be dependent
on the inflation.
Just because, a minimum
wage is set by the government does not mean that the workers are only entitled
to get this minimum pay for their basic subsistence. The actual wages to be
paid in the market should be in line with the demand and supply of labour. That
is, the wage rate should be determined by the market forces.
When the wage rate
decided by the market goes lower than the minimum subsistence level (caused due
to an over-supply of labour), then it will lead to starvation and abject
poverty among workers. The role of the government must be not let this
starvation happen. But it does not mean that the government has to set the
minimum wages very high letting the worker have a flourishing life, which will in
the long run, prove detrimental to the economy.
Unlike the arguments of
the critics, a minimum wage set scientifically by a government in order to meet
the minimal living expense of a worker, will not affect the market mechanism.
The argument can be explained further. If the wage rate set by the market go
down to the level equal to the minimum wage rate set by the government, then
the worker will not continue with the same job (that gives him minimum
subsistence), he/she will look for a job that will fetch a higher wage. Thus, efficient
allocation of labour force based on market principles remain unencumbered
ensuring the welfare of not subjecting the labour to poverty.
Present minimum wage system in Kerala: A concern or not?
The report on the Working of the Minimum
Wages Act, 1948 for the year 2013, published by the Ministry of Labour and
Employment identifies Kerala as the state that pay the highest minimum wage in
the country (Rs382.5 for unskilled workers and Rs.532.2 in the case of
employment in river sand collection). The wages set by the market in Kerala
today is also the highest in the country (Rs713 as of July 2013). The minimum
wage rate does not become a concern as long as the wages set by the market
stays above it. The unintended consequences of minimum wages arise only when
the market wage rate fall below the minimum wage. If the minimum wages are not determined
scientifically, then it distorts the market mechanism and aggravate into uneven
distribution of labour resources.
The
question here is how scientifically, the minimum wage rate is determined. The
Minimum Wages Act,1947 does not prescribe a stipulated criteria for fixing the
minimum wage and the governments have the liberty to fix the minimum wages
based on the recommendations of an expert committee. But, the extent to which
the states follow this is dubious.
In the absence of any criteria stipulated for
fixing the minimum wage in the Minimum Wages Act, the Indian Labour Conference
in 1957 had said that the following norms should be taken into account while
fixing the minimum wage. The norms for fixing minimum wage rate are (a) three
consumption units per earner, (b) minimum food requirement of 2700 calories per
average Indian adult, (c) cloth requirement of 72 yards per annum per family,
(d) rent corresponding to the minimum area provided under the government's
Industrial Housing Scheme and (e) fuel, lighting and other miscellaneous items
of expenditure to constitute 20 per cent of the total minimum wage (f) Fuel,
lighting and other miscellaneous items of expenditure to constitute 20% of the
total Minimum Wages, (g) children education, medical requirement, minimum
recreation including festivals/ceremonies and provision for old age, marriage
etc. should further constitute 25% of the total minimum wage.
In
Kerala, given the highest minimum wage rate in the country, if not determined
scientifically. The consequence is that, at a time of excess supply of
labourers, the declining market wages get stuck at the minimum wage level.
Since the minimum wage level provide them with income comfortable for their
living, they do not search for higher paid jobs. As a result, efficient
allocation of labour resource does not happen which exacerbate into resource
wastage resulting in economic inefficiency.
