UNIT 2

ECONOMIC OBJECTIVES OF WAGE POLICY:

An important objective of any society is the achievement of maximum economic welfare. This requires first, that the national income shall be maximised, second, that the national income should be divided equally among all the members of the economy, and third, there should be a fair amount of stability in the national income.

In general, economic welfare will be maximised if the highest and most stable standard of living possible for each section of the community is attained. in order to secure this, it is necessary to achieve: 1. Full employment and optimum allocation of all resources 2. The highest degree of economic stability consistent with an optimum rate of economic progress 3. Maximum income security for all sections of the community.

The major objectives of wage policy must be aimed at attaining these conditions.

THE SOCIAL OBJEVTIVES:

A given wage policy must be instrumental in achieving : The elimination of exceptionally low wages.

The establishment of fair labour standards. The protection of wage earners from the effects of rising prices. The incentive for workers to improve their productive performance.

The social and economic objectives, no doubt, are closely interrelated. Measures inspired by social considerations inevitably have economic effects, and those designed to achieve specific economic results have social implications. For example, the raising of wages through fixing a statutory minimum wage will normally effect production and employment in your organisation; and if you take measures to keep cost of productions at a competitive level, it may frustrate the aspirations of your employees. Keeping the above facts in mind, it is essential that wage policy should be necessarily interrelated with broader economic decisions on the one hand, and with the goal set for social policy on the other. Wages, being a price for labour, have to be in harmony with other prices in the system hence, it becomes necessary to maintain a balance between the objectives of economic development and principles of a democratic system in the formulation of wage policy. As we shall see in the course of this unit, these demands make it a complex exercise. Most modern societies profess to be welfare states. Laissez-faire conditions no longer prevail. The state actively intervences, sets the tone, directs and sets conditions which govern, among other things, the wage and salary administartion policies. The constitution, employers and unions, legislatures and courts actively influence public ploicy. The tone and tenor of public policy on wages/salaries in post-independent india have been set out in the industrial Truce Resolution(1947), industrial policy resolution (1948), the constitution, successive plan documents, ministrial speeches etc. We shall briefly review the key policy considerations, wage concepts, legal framework and instruments meant for wage determination.

KEY CONSIDERATIONS:
The key considerations in public policy concerning wages/salaries in india may be identified as following:

1. To end exploitation and provide remuneration to capital and labour such that while in the interests of the consumers and the primary producers excessive profits should be prevented by suitable measures of taxation and otherwise both will share the product of their common effort after making provision for payment of fair wages to labour, a fair return on capital employed in the industry and reasonable reserves for the maintainence and expansion of the undertaking(industrial policy resolution, 1947). 2. To fix statutory minimum wages in selected industries and promote fair wage agreements in the more organized industries(industrial policy reolution, 1948). 3. To ensure equal pay for equal work(constitution of india). 4. To provide for wage differentials. 5. To regulate wages and salaries to eliminate/reduce undue disparities. 6. To link remuneration to productivity. 7. To compensate for the rise in cost of living. 8. To determine fair wages over and above minimum wages with due regard to a. The productivity of labour b. The prevailing level of wages c. The level of national income and distribution d. Theplace of industry in the economy of the country 9. The capacity to pay. However, the Supreme Court ruled that an employer who cannot pay minimum wages has no right to exist. The capacity to pay becomes a subject of consideration to determine fair wages over and above the minimum wages. 10. The basic needs of labour. (the 15th session of indian labour conference held in 1957 suggested that the minimum wages be need based). 11. To secure a living wage for workers (article 43, which is a part of the directive principles of state policy of the constitution).

5 YEAR PLANS AND WAGE POLICY:

THE FIRST PLAN (1951-1956) suggested that pre-war levels of real wages should be restored as a first step towardsliving wage through increased productivity. It furthur suggested various measures for making wage adjustments. These measures included: reduction of disparities in income, reduction of gap between the existing and living wages, standardisation and maintainence of wage differentials to provide incentives. The second plan (1951-1961) stressed improvement in wagews through increased productivity stemming from efficiency on the part of the workers, improved layout of plants and improvement in management practices. It suggested a wide application of the system of payment by results with due safeguards such as protection against fatigue and undue speed up. Specifically, the plan recommended settlement of industry wise wage disputes through triparitite wage boards. Significant development during this period relates to the recommendation of the 15th Indian labour conference with respect to the need based minimum wages. Another major development was the report of the second pay commission for central government employees. The concept of need based minimum wage generated public controversy. The 3rd plan (1961-1966) reinforced the wage policy of the preceding two plans with respect to minimum wage fixation, reduction of disparities and wage differentials and stressed the role of productivity in raising the living standard of the workers. The fourth plan(1969-1974) did not provide a fresh direction or any shift of the governments wage policy. The fifth plan (1974-1979) recommended that the reward structure of the industrial employees in terms of wage and non wage benefits must be related to performance records in industrial enterprises. The plan suggesstedthat it was necessary to build over a period of time a national wage structure to narrow down disparities within the organized sector itself, including both public and private sectors. Committee on wage policy released its report at the end of 1975. The report relates to the problems of wage policy in the organized sector of the economy including the government sector. The committee felt that the objectives of a wage policy cannot be accomplished if wage fixation is left to the forces in the labour market. According to the committee, the objectives of wage policy include provision of minimum wages not below the poverty line to ensure health and efficiency of workers, distribution of due share in the fruits of growth, rationalization of wage differentials and minimization of disparities, removal of unjustified wage differentials between the organized and the unorganized sector, provision of compensation for health and life hazards and other disadvantages, provision of compensation for raising cost of living, provision of incentives for productivity and skills, reduction of wage disputes, removal of malpractices in wage payments, etc. The sixth plan(1980-1985) pointed out there were marked disparities with respect to wages between the organized and unorganized , urban and rural sectors. Specifically, it observed that

wage levels in the organized sector varied not only between regions and industries but even among units in the same industry. These levels were related neither to the nature of occupations nor to the level of skills. The anomalies and disparities have resulted in social tensions and industrial unrest. Therefore, the plan stressed the need for bringing about a greater rationalization of wage structure and linking of wages atleast in some measure to labour productivity.the plan also realized an urgent need to generate a climate conducive to modernization in industry, and adoption of new techniques which help increase in productivity without being detrimental to employment. The 7th plan(1985-1990) asserted that an important aspect of labour policy related to the formulation of an appropriate wage policy. The basic objectives of the wage policy as visualized by the plan were a rise in the levels of real income in consonance with increases in productivity, promotion and productive employment improvement in skills, sectoral shifts in the desired directions and reduction in disparities. The 8th plan(1992-1997) laid focus on formulation of wage policy relating to child labour, bonded labour, rural labour, women labour and inter state migrant labour. The new wge policy for public enterprise should generate their own resources to meetwage revision and enhanced liabilities. Justice Mohan Commitees Report reviewedthe wage structure of PSUs and has given an entirely different angle

PAY COMMISSIONS:
The pay structure of the central government employees is based on the recommendations of pay commission set up by the central government. While some state governments also broadly follow the recommendations of the central pay commissions for their employees, also a few other state governments set up their own pay commissions. During the past 50 years, government of india has setup 5 pay commissions.the recommendations of the 5th pay commission, which submitted its report in 1997, as accepted by the government are currently in force. Pay commissions also cover a wide range of employees in the public sector. There are significant differences between the methods of settlement of wage disputes available to workers in the private sector and those concerned with the government employees. The latter are at a disadvantageous position as none of the wage settlement methods such as collective bargaining, conciliation, adjudication or arbitration is available to these employees to settle wage claims and disputes. A joint consultative machinery was set up by the central government to discuss matters relating to the welfare of the employees and improvement of efficiency and standards of work. The scheme provides a limited extent of compulsory arbitration on the following subjects:

Pay and allowances Weekly hours of work Leave of a class or grade of employees.

The government, however, becomes the final authority in deciding whether an issue can or cannot go for arbitration. Despite these arrangements, the effective method available to government employees is that of enquiry by a pay commission. The central government has so far set up 5 pay commissions which reported in 1947, 1959, 1973, 1984 and 1996 respectively. Most state governments have also setup pay commissions from time to time. Pay commissions which were setup at regular interval functions non statutory, study the problems, establishing their own procedures for the collection of data and information and make recommendations to the government. Though these recommendations are given much weightage, the ultimate responsibility lies with the government whether to accept or reject some of them. The 1st central pay commission recognized that the influence of the law of demand and supply cannot be wholly ignored in fixing the salaries of public servants. The fairness and adequacy of the salary proposed may be judged balancing the interests of the employee, employer and the public. The commission stated that an employee must be paid a living wage. However, with the fair wages committees clarification of the concept of living wage it becomes clear that the living wage which was recommended by the commission should actually be the minimum wage. The second pay commission also referred to the principle that as a matter of social policy,