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Learning Objectives
To know the concept of Statutory, Bare or Basic Minimum
Wage
To understand Fair Wage
To understand Living Wage
The Need-Based Minimum Wage
The term wages may be used to describe one of the several
concepts, including wage rates, straight time average hourly
earnings, gross average hourly earnings, weekly earnings; weekly
take home pay and annual earnings. Money paid to the workers
is considered as wages. The wage is the payment made to the
workers for placing their skill and energy at the disposal of the
employer. The method of use of that skill and energy being at
the employers discretion and amount to the payment being in
accordance with terms stipulated in an contract of service.
Various terms that are currently in use in the payment system
are wages, pay, compensation and earnings.
Statutory Minimum Wage
It is the wage determined according to the procedure prescribed
by the relevant provisions of the Minimum Wages Act, 1948.
Once the rates of such wages are fixed, it is the obligation of
the employer to pay them, regardless of his ability to pay. Such
wages are required to be fixed in certain employments where
sweated labour is prevalent, or where there is a great chance of
exploitation of labour.
Bare or Basic Minimum Wage
It is the wage, which is to be fixed in accordance with the awards
and judicial pronouncements of Industrial Tribunals, National
Tribunals and Labour Courts. They are obligatory on the
employers.
Minimum wage, and fair wage and living wage are the terms
used by The Report of the Committee on Fair Wages, set up by
the Government in 1948 to determine the principles on which
fair wages should be based and to suggest how these principles
should be applied. According to this Committee, the minimum
wage should represent the lower limit of a fair wage. The next
higher level is the fair wage, and the highest level of the fair
wage is the living wage.
A Minimum Wage
It has been defined by the Committee as the wage, which
must provide not only for the bare sustenance of life, but for
the preservation of the efficiency of the worker. For this
purpose, the minimum wage must provide for some measure
of education, medical requirements and amenities.
In other words, a minimum wage should provide for the
sustenance of the workers family, for his efficiency, for the
education of his family, for their medical care and for some
amenities.
The question of determining the minimum wage is a very
difficult one for more than one reason. Conditions vary from
place to place, industry to industry and from worker to worker.
The standard of living cannot be determined accurately.
What then should be the quantum of the minimum wage?
What is the size of the family it should support?
Who should decide these questions?
These issues are very difficult to decide. Moreover, since the cost
of living varies with the price level, it follows that this index
should be periodically reviewed and modified.
However, the principles for determining minimum wages were
evolved by the Government and have been incorporated in the
Minimum Wages Act, 1948, the important principle being that
minimum wages should provide not only for the bare
sustenance of life but also for the preservation of the efficiency
of the workers by way of education, medical care and other
amenities.
There is a distinction between a bare subsistence or minimum
wage and a statutory minimum wage. The former is a wage
which must be sufficient to cover the bare physical needs of a
worker and his family if an industry is unable to pay to its
worker at east a bare minimum wage it has the right to exist.
The statutory minimum wage is however is the minimum wage
which is prescribed by the statue and it may be higher than the
bare subsistence or minimum wage. The courts and tribunals
laid emphasis upon fulfillment of needs of an industrial labour
irrespective of the capacity of the industry or of his employer to
pay. For instance in Hindustan Times Limited Vs. their
workmen, the Supreme court held that at the bottom of the
ladder there is the minimum basic wage which the employer of
any industrial labour must pay in order to be allowed to
continue an industry.
Living Wage
This wage was recommended by the Committee as a fair wage
and as ultimate goal in a wage policy. It defined a Living Wage as
one which should enable the earner to provide for himself and
his family not only the bare essentials of food, clothing and
shelter but a measure of frugal comfort, including education for
his children, protection against ill-health, requirements of
essential social needs and a measure of insurance against the
more important misfortunes, including old age.
In other words, a living wage was to provide for a standard of
living that would ensure good health for the worker, and his
family as well as a measure of decency, comfort~ education for
his children, and protection against misfortunes. This obviously
implied a high level of living.
Such a wage was so determined by keeping in view the national
income, and the capacity to pay of an industry. The Committee
was of the opinion that although the provision of a living
LESSON 9:
INTRODUCTION TO MINIMUM,
FAIR AND LIVING WAGE
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wage should be the ultimate goal, the present level of national
income did not permit of the payment of a living wage on the
basis of the standards prevalent in more advanced countries.
The goal of a living wage was to be achieved in three stages. In
the first stage, the wage to be paid to the entire working class
was to be established and stabilized. In the second stage, fair
wages were to be established in the community-cum-industry.
In the third stage, the working class was to be paid the living
wage.
The living wage may be somewhere between the lowest level of
the minimum wage and the highest limit of the living wage,
depending upon the bargaining power of labour, the capacity
of the industry to pay, the level of the national income, the
general effect of the wage rise on neighboring industries, the
productivity of labour, the place of industry in the economy of
the country, and the prevailing rates of wages in the same or
similar occupations in neighboring localities.
Fair Wage
According to the Committee on Fair Wages, it is the wage
which is above the minimum wage but below the living wage.
The lower limit of the fair wage is obviously the minimum
wage; the upper limit is set by the capacity of the industry to
pay. The committee envisages that while the lower limit of the
fair wage must obviously be the minimum wage, the upper
limit is equally set by what may broadly be called the capacity of
the industry to pay. This will depend not only on the present
economic position of the industry but on its future prospects.
Between these two limits, the actual wages should depend on
considerations of such factors as:
(a) The productivity of labour;
(b)The prevailing rates of wages in the same or neighboring
localities;
(c) The level of the national income and its distribution; and
(d) The place of industry in the economy of the country.
The committee observed that it was not possible to assign any
definite weights to the work factors in the actual calculation of
the fair wage and that the wage fixation machinery should relate
a fair wage to a fair load of work and a needs of a standard
family consisting of three consumption units inclusive of the
earners. In a specified region the capacity of the particular
industry should be taken in to account to determine the capacity
to pay which in turn could be ascertain by taking a fair cross
section of the industry of the region. It was recognized that the
present level of the National income does not permit the
payment of a living wage on standards prevalent in more
advanced countries. It also observed that at almost any level of
the national income there should be a certain level of minimum
wages which society can afford; what it can not afford are
minimum wages fixed at a level which will reduce employment
itself and there by diminish the national income.
Fair wage is something above the minimum wage which may
roughly be said to approximate to the need based minimum in
the sense of a wage which is adequate to cover the normal need
of the average employee regarded as a human being in a
civilized society.
The Need-Based Minimum Wage
The Indian Labour Conference, at its 15th session held in July
1957, suggested that minimum, wage fixation should be need-
based, and should meet the minimum needs of an industrial
worker.
For the calculation of the minimum wage, the Conference
accepted the following norms and recommended that they
should guide all wage-fixing authorities, including the
Minimum Wage Committee, Wage-Boards, and adjudicators:
(i) The standard working class family should be taken to consist
of 3 consumption units for the earner; the earnings of
women, children and adolescents should be disregarded;
(ii) The minimum food requirements should be calculated on
the basis of the net intake of 2,700 calories, as recommended
by Dr. Akroyd, for an average Indian adult of moderate
activity.
(iii)The clothing requirements should be estimated at a per
capita consumption of 18 yards per annum, which would
mean, for an average workers family of four, a total of 72
yards;
(iv)In respect of housing, the norms should be the minimum
rent charged by the Government in any area for houses
provided under the Subsidized Housing Scheme follow-
income groups; and
(v) Fuel, lighting and other miscellaneous items of expenditure
should constitute 20 per cent of the total minimum wage.
The need based minimum wage is also a level of fair wage and
represents a wage higher than the minimum obtaining at
present in many industries, though it is only in the lower
reaches of the fair wage. We therefore hold that in fixing the
need based minimum, the capacity to pay will have to be taken
in to account.
Money and Real Wages
Wages earned by employees are normally expressed in terms of
money. There are two aspects of wages. One is expressed by the
term money wage while the other by real wage. Money wages
give to the workers command over good and services. The
actual goods and services for which wages can be exchanged
constitute their real value. For this reason arise or fall in nominal
wages does not necessarily mean a corresponding increase or
decrease in real wages. In short money wages can be expressed
by amount in terms of currency while the real wages refer to the
goods and services that an worker can buy with these wages.
Changes in money wages can most appropriately be compared
with changes in the average price of a market basket of
goods and services typically purchased by wage earners. Real
wages are calculated by relating changes in money wages to
changes in the consumer price index. Real wages in contrast to
money wages depend on production.. It provides the real test
as to whether or not the worker is improving his economic
wells being. It also serves as a index for measuring changes in
the economic welfare of workers over long period of time.
Assignments
1. What are the different types of wages?
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2. What is the difference between minimum wage, living wage
and fair wage?
3. What do you understand by the term need-based minimum
wage and explain the importance of it in compensation
management?
4. Identify an organization, study its compensation package
and find out the kind of wage level offered by it to its
employees.
Case Study
Sweetwater Match
Robin Welch, a computer programmer at the sweet maker
companys first annual mixed doubles tennis tournament. He
and his lady friend , Gloria kovac, who works as an accountant
in the company s finance department, have become
accomplished tennis player . They felt that they have a chance to
win it all. Because of the growing interest in tennis by a large
proportion of the firms employees and their increased
productivity at work the company arranged the tournament to
be played on Friday. This was declared as tennis holiday. By the
company founder and the president Robert sweet water. Gloria
and robin advanced to the tournament finals. Leading in the
third and decisive set robin tripped going back to play an
opponents lab shot. He twisted his ankle badly. Despite this
injury robin and Gloria went on to win the game and the
tournament. However, the ankle became worse and he was
confined to bed. X-rays showed a hairline fracture. Robin had a
to miss four days of work for medical attention. Company sick
leave policy provides for only two days per month. Under state
law, workers compensation provides payments if the worker is
functioning within the scope of employment.
Problem
If Robin files for workers compensation, what are the points
for and against allowing his claim? Are there any alternative
possibilities for compensation?
Notes