me 210 deepak prasad sectiond assignment 2

8/6/2019 ME 210 Deepak Prasad SectionD Assignment 2

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Macro Economics

Assignment IIWage Determination in India

Deepak Prasad

PGP/14/210

Section D


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2 Macro Economics Assignment II

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

me 210 deepak prasad sectiond assignment 2

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