How wages are determined in India?

Introduction Wages are one of the important concerns of each and every worker. One seeks employment so that he/she can attain a dignified standard of living. So its the wage that one earns that enable him/her to fulfill the basic needs of life. For the contribution of the worker towards society, it should in turn make sure that he/she is compensated fairly. But the wages will have to come from the economic viability and profitability of various undertakings. So their capacity to pay should be fair both in terms of individual needs and the social responsibility of the citizens. So responsibility boils down to the state to create and economic order which would provide every citizen with employment and receives a fair wage. So the government of free India set up a committee to define fair wage and indicate the legal terms to ensure that fair wage is received. The Industrial Policy Resolution on 1948 emphasized on fixation of statutory minimum wages and promotion of fair wage agreements in the more organized industries. A Tripartite Committee on Fair Wages was constituted which had representation from employees, employers and government. Three levels of wages were defined by the committee. 1. 2. 3. Living wage Fair wage Minimum wage

The Committee felt that the living wage should enable the worker to provide for himself and his family not merely the basic essentials of food, clothing and shelter but a measure of frugal comfort including education for children, protection against ill health, requirements of essential social needs and a measure of insurance against more important misfortunes including old age. Taking Indian conditions into consideration, the Committee was of the view that a minimum wage must provide not merely for the bare sustenance of life, but for the preservation of the efficiency of the worker. For this purpose the minimum wage must also provide for some measure of education, medical requirements and amenities. It further observed that its members were unanimous that the fair wage should on no account be less 2

than the minimum wage. It also observed that while the lower limits of the fair wage must obviously be the minimum wage the upper limit should be set by what may broadly be called the capacity of industry to pay. The Fair Wages Committee was of the view that in determining the capacity of the industry to pay, it would be wrong to go by the capacity of a particular unit or the capacity of all the industries in the country. The relevant criterion should be the capacity of a particular industry in a specified region, and as far as possible the same wages should be prescribed for all units of the industry in that region. According to the first and second five year plans Wage Boards were set up for various industries like cotton textile industry, jute plantations, mines, engineering iron and steel, chemicals, sugar, cement, railways, posts and telegraphs, ports and docks etc. These Wage Boards determined the wages and other remuneration to be given to the workers in these industries. Thus wage bargaining mostly took place at the industry level, and through Government controlled wage boards. Wage Determining Mechanisms Wages and salary incomes in India are determined mainly by the below mentioned mechanisms 1. Collective bargaining 2. Industrial wage boards 3. Govt. appointed pay commissions 4. Adjudication by courts & tribunals Different areas of wage employment have different wage levels. The modern capital intensive organised sector of IT industry, petro-chemicals, pharmaceuticals, etc., have more attractive wages than in small-scale industry and other traditional labour-intensive sectors such as the unorganised urban and rural sector and agriculture. The efforts should be to reduce these wage differentials and introduce some sort of standardisation, it is practically very difficult and these differences in earnings of the workers in different sectors of industry are likely to continue. Much depends upon the capacity to pay and 3

profitability of these sectors. Any wage policy will have to take these factors into consideration. 1. Collective Bargaining:Collective bargaining relates to the arrangements under which wages and conditions of employments are generally decided by agreements negotiated between the parties. The wages in the organised sector are decided mostly by collective bargaining. Wherever necessary, the government intervenes in the wage determination process. The government has been fixing minimum wages for different occupations and also linking these wages to dearness allowance. Following factors affect the wage determination by collective bargaining process Alternate choices & demands Institutional necessities 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 General level of wage rates, Structure of wages rates (differential among occupations) and Bonus, incentives and fringe benefits, Administration of wages. Collective bargaining is not common in the unorganised sector. In several cases bipartite collective agreements in the unorganised sector have provided for wages lower than the applicable minimum wages. Where such agreements are entered into through conciliation and/or registered with the appropriate government, the labour commissioners concerned are expected to ensure that the wages, benefits and other conditions are not lower than the applicable minimum wages and other standards laid down in labour laws. 2. Industrial Wage boards:As mentioned earlier this was constitutes as per the recommendation of the first and second year plans. Wage boards in India are of two types Statutory wage board 4

Tripartite wage board

Statutory wage board means a body set up by law or with legal authority to establish minimum wages and other standards of employment which are particular trade or industry to which boards then legally enforceable in decision relate. Tripartite wage board means a voluntary negotiating body set up by discussions between organized employers, workers and govt. to regulate wages, working hours and related conditions of employment. 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 those industrial tribunals unsaturated under Act 1947 3. Pay commissions :The Pay Commissions of the Central Government took different approaches for the determination of the Minimum Wages for government employees. They were as follows: (i) The need based approach; (ii) Capacity to pay approach; (iii) Relative Parities approach; (iv) Job evaluation approach; (v) Productivity approach; (vi) Living wage approach

4. Adjudication Wherever there is any dispute between trade unions and management on time study and work measurement, disputes are not settled through courts, but through technical experts. Since independence adjudication has been one of the main instruments for settlement of disputes, improvement in 5

wage scales and standardization of wages and allowances. Though courts and tribunals were primarily intended to deal with settlement of industrial disputes, in practice, wage fixation has become an important element in their work and functioning. This is because of large of disputes concerning of wages and allowances. Numerous wage disputes in many industries have been referred for adjudication to labour courts and tribunals during past ten decades. The high courts and Supreme Court have also adjudicated upon such disputes. The awards given by these authorities not only helped in formulation of a body of principles governing wage fixation but laid foundation for present wage structure in many of major industries. Some major legislation which governs the principles of wage fixation -Minimum wages Act Conclusion The factors that are relevant to wage determination are a) Various Committees appointed by the Government b) Various judicial pronouncements and the principles enunciated therein from time to time. c) Capacity of an industry to pay d) Bargaining strength of the negotiating union of workers e) Regional wages prevailing in that region f ) Prices, profits and productivity

References http://www.labour.nic.in/lcomm2/2nlc-pdfs/Chap12-IIIfinal.pdf http://www.nlcghana.org/nlc/privatecontent/document/LABOURACT2003.pdf http://www.wageindicator.org/documents/Wagemeasurement/Indiawages