Wage Measurement and connected issues in India

Presentation by Biju Varkkey Indian Institute of Management Ahmedabad India

PROFILE OF INDIA
Total no: of States and Union Territories Total no: of revenue districts Total population Annual Per capita income GDP Total workforce 28 States and 7 Union Territories 602 1028 million (2000) Rs. 10,254 / US $ 520 (for 2000-01) Rs. 18,95,843 crores (for 2000-01 315 million

Organized
Unorganized

29.61 million
285.39 million

INDIA : HUMAN DEVELOPMENT INDEX

Life expectancy at birth (years) (HDI), 2002 63.7 y Adult literacy rate (% ages 15 and above) (HDI), 2002 GDP per capita (PPP US$) (HDI), 2002 61.3

2,670

Employment : Organized Sector.

Nos in million

Factories Mines Plantations Shops and Establishments Motor Transport

10.47 0.49 1.09 5.00 0.71

Services
Ports Central/State Governments Total Year

3.86
0.022 7.000 27.762 (1999-2000)

Employment: Unorganized
It is difficult to correctly arrive at the employment numbers, under different categories in the unorganized sector.

However, agriculture & related activities continues to be the dominating sector accounting for 70% of unorganized sector employment. Construction will be the next largest sector.

Differences: organized and unorganized sectors.

The organized sector enjoys better conditions of work, protection under labor laws, are better unionized and most enjoy collective bargaining rights when compared to their unorganized sector counter parts. On the other hand, the degree of protection & trade union rights available for unorganized sector is limited : however, varies depending on extend of unionization/political climate of the state. (Kerala/West-Bengal). In such cases they enjoy near equal protection.

Differences: Government, Public and Private sector workers.

Government workers enjoy high level of job protection, trade union representation without collective bargaining rights. Public Sector workers enjoy trade union and collective bargaining rights. Private sector workers enjoy trade union and collective bargaining rights like public sector. Current trend to nonunion workplaces. Right to strike for government employees prohibited by Supreme Court of India in 2002. Officers/executives in any sector no trade union, collective bargaining rights.

Framework 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.

CONSTITUTION of India ON WAGES

Directive Principles Article 39 There is equal pay for equal work for both men and women; Article 43 Living wage, etc., for workers.- `The State shall endeavor to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities and, in particular, the State shall endeavour to promote cottage industries on an individual or co-operative basis in rural areas.

Government and Wages in India.

Government has been intervening from time to time, but the process was slow. For unorganized sector legislations and for others through various institutions. Initial interventions (modern) were by British 1860 (though different kings too had their own rules) Committee on Fair Wages : 1946, provided a modern framework.

National Wage Policy for India.

As of now, India does not have a formal national wage policy, though the issue has been discussed several times. The government has direct and indirect control over wage levels, which has been exercised through different institutions. (Top salaries of PSUs and Private Sector are strictly regulated, though the degree has been diminishing, particularly in Private Sector This has led to phenomenal differentials between Private and Public).

Committee on Fair Wages 1946

Minimum Wage: - bare subsistence of worker, enough for health, efficiency and working capability. Fair wage: Above minimum wage Living wage: male worker not to provide for himself, but for family not just bare necessities but frugal comfort, education for children, social security etc. Need based minimum wage.

Institutions involved in wage determination.

Wages Legislation. (covers organized/unorganized)
Wage Boards (covering select private and public sectors). Pay Commission (for government/Public Sector). Collective Bargaining (for covered workers). Government Directives/Special commissions
Salary Surveys/Compensation Consultants for private sector, non officer cadre.

Wages Legislation
Minimum Wages Act 1948 Payment of Wages Act 1936. Equal Remuneration Act 1976 Companies Act 1952.

Other (s): Payment of Bonus Act

Definion of Wages
Minimum wages Act:
Wages" 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 [and includes house rent allowance], but does not include(i) the value of- (a) any house, accommodation, supply of light, water, medical attendance, or (b) any other amenity or any service excluded by general or special order of the appropriate government; (ii) any contribution paid by the employer to any pension fund or provident fund or under any scheme of social insurance; (iii) any travelling allowance or the value of any travelling concession; (iv) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or

Who is eligible for Minimum wages?

"employee" means any person who is employed for hire or reward to do any work, skilled or unskilled, manual or clerical, in a scheduled employment in respect of which minimum rates of wages have been fixed; and includes an out-worker to whom any articles or materials are given out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for sale for the purposes of the trade or business of that other person where the process is to be carried out either in the home of the out-worker or in some other premises not being premises under the control and management of that other person; and also includes an employee declared to be an employee by the appropriate government; but does not include any member of the Armed Forces of the,8[Union].

Calculation of Minimum Wages:

15th Indian Labor Conference:
Standard working family of 1 man(earning)+ 1 women (wife) + 2 children. 2700 calories for adult 80% for wife and 60% for child (daily) 72 yards of cloth per annum. Government rental cost for housing 20% of above for fuel, lighting, miscellaneous.
This formed the basis for calculation.

Minimum Wages: present situation.

Idea of National Minimum wages not accepted. Hence minimum wages determined by center/state government for different occupations. Now total 200 occupations covered. For same occupation , minimum wages vary from state to state. Declared on per day basis for 8 hour work.

Wage Indexation.
The system of DA (Dearness Allowance) to take care of effects of inflation. (cost of living). Indexation can be fixed or variable (indexation value decreases as income rises). Consumer Price Index used as the basis. Clearly followed in organized sector. On some states minimum wages revised periodically, so no requirement for indexisation.
(Freeze in DA)

Payment of Wages Act 1936

Introduced to ensure that wages are not withheld, no wrongful deductions made and payment is made in such manner that wage earner will benefit. (objective was to reduce effects of payment in kind for work done). Act has limitations agriculture not covered.

Current Situation.
Payment in kind reducing. (only kind may be very rare) combination of cash and kind. Organized sector moving into Commercial Bank linked transactions. (ATMs/Cheque). Non-payment of wages still a cause for industrial dispute in organized sector.

Non-payment of wages dealt as police complaint (criminal offence) in unorganized sector.

Equal Remuneration Act 1976

Payment of equal wages for men and women workers for same work or work of same nature.

However discrimination exists in terms of definition as: difficult work (men) and easy work (work) in same workplace. Also depending on type of employment contracts

Types of employment contracts.

Organized Sector Permanent worker. Contract Worker. Badali Worker (substitute) Casual Worker (daily wages). Apprentice/Trainee. Un-organized Sector Inherited worker.

Contract worker. Casual worker. Beck and call worker. Free labour/Help. Bonded/Child (illegal)

Bonus Payment
Payment of Bonus Act.
8.33% minimum bonus and 20% maximum, even for loss making organizations. Workers earning up to Rs 3500 (?) per month alone eligible. Government employees (earning limit applied) also given bonus, declared yearly.
In un-organized sector, one month equivalent (during festivals) is like a norm

Working Hours
Formal sector :- Factories Act
No adult workers shall be required or allowed to work in a factory for more than forty-eight hours in any week. (51) Subject to the provisions of section 51, no adult worker shall be required or allowed to work in a factory for more than nine hours in any day. The periods of work of an adult worker in a factory shall be so arranged that inclusive of his intervals for rest under section 55, they shall not spread over more than ten and a half hours in any day : Provided that the Chief Inspector may, for reasons to be specified in in writing, increase the spread over up to twelve hours.

Working hours contd .

Shops and commercial establishments Act No employee in any establishment shall be required to work for more eight hours in any day and 48 hours in any week. (Section X of THE KERALA SHOPS
AND COMMERCIAL ESTABLISHMENTS ACT, 1960 )

Informal Sector: Based on conventions `sunrise to sunset unless the sector/location is unionized. Government 45 hours.

Overtime payment.
Workers under factories Act are eligible for overtime payment, for excess of 30 minutes - at twice the rates. Working on off days, holidays also eligible for overtime. Overtime specified under Minimum Wages Act. Government has abolished overtime in gov/Public Sector (now compensatory off).

Wage Boards.
Tripartite Wage Boards consists of equal representatives of employers and workers and an independent Chairman. Determined the wages and other remuneration to be given to the workers in industries, where wage boards are formed . Wage bargaining mostly took place at the industry level, and through Government controlled wage boards. First Wage Board (Divatia Wage Board) was constituted in May, 1956

Pay Commission:- (government employees)

GOI appoints pay commissions to determine the wages (monthly) and conditions of work of government employees, including armed forces. Till now 5 commissions have been appointed State Governments also appoint commissions for state government employees. Central and State pay commission reports considered a bench mark for organized sector.

Wage determination: Bargainable Category in Public and Private Sectors.

PSUs collective bargaining (national/industry level) exists but not very free. Government sets limits. (LCF).
Some private sector also join the PSUs (banks) for wage negotiations, if the union is common. In private sector - enterprise level bargaining is accepted. But they too try to keep wages under check.

Wage Determination: Non barganiable category in Public Sector.

Set by the government.

 Difference between Sunrise and Traditional Sectors. This is where freedom exists. Executive salaries have been shooting through the roof in India, particularly in sunrise sectors like IT, Bio Tech. In fact, NRI;s from North America are coming back since they find that earning potential is high.

Wage Determination: Non Bargainable Category Private Sector.

Taxation Issues
Only in organized sector, three stage tax rate on wages. Only very few people covered (or actually pay taxes).

15%, 20%, 30% depending on annual income. No tax below Rs 1 lakh. Reforms are progressing

Agencies Involved in Collection of Wages Data

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. Comprehensive Source of wages Absent.