Minimum Wage vs Living Wage? Is INDIA planning a shift?

Decades of debate in India culminate in a potential policy shift: replacing the minimum wage with a living wage by 2025? This ambitious move, seeking guidance from the International Labour Organization , aims to improve the lives of millions of workers, particularly those in the vast informal sector, which encompasses a staggering 554 million-strong labor force – the second largest in the world after China (as of 2022).

India's minimum wage system, established in 1948 and now under the 2019 Code on Wages Act, sets varying minimum income levels based on location, industry, skill, and occupation. Despite revisions, the national minimum wage of around INR 178 per day (US$2.15) often falls short of covering the actual cost of living in many areas. Regional disparities are significant, with minimum wages ranging from INR 160 (US$1.93) in Bihar to INR 423 (US$5.11) in Delhi. Tracking these changes is crucial as minimum wages are periodically adjusted for inflation. This complexity can make it difficult for workers to understand their rights and for businesses to navigate compliance. While the average Indian salary for unskilled work might range from INR 2250 to 70,000 (US$27.17-$845.40) per month, the median monthly salary is just INR 29,400 (US$355.07), indicating a significant gap. Compared to Southeast Asian neighbors, India's average minimum wage of US$95 in 2021 remains considerably lower. This often translates to struggles with affording basic necessities and can leave minimum wage earners, particularly those in the vast informal sector (over 90% of the workforce), vulnerable to exploitation. The potential shift towards a living wage by 2025 offers hope, but challenges of implementation and addressing regional variations remain.

The Living Wage: Finally A Decent Standard of Living for Indian Labour?

The living wage refers to an income level that allows individuals or families to afford basic necessities like food, shelter, healthcare, transportation, and a modest level of recreation. It's designed to provide a decent standard of living and prevent poverty. Unlike the minimum wage, which is mandated by law, the living wage is a theoretical calculation based on factors like location, family size, and inflation. Estimates suggest a living wage in India could be substantially higher than the current minimum wage.

Calculating a living wage involves considering various components:

• Basic Needs: Housing, food, clothing, utilities, transportation.
• Family Size: The cost of living increases with the number of dependents.
• Location: Regional variations in housing costs, food prices, and other essentials.
• Inflation: The living wage needs to be adjusted for rising costs.

Organizations like the Anker methodology (used by NGOs) take these elements into account to estimate living wage benchmarks.

While both minimum wage and living wage aim to offer some level of financial security to workers, they differ significantly in their purpose and impact.

Minimum Wage: A Safety Net with Holes?

The minimum wage is the lowest legal hourly wage employers can pay their workers. Established in 1948 (now under the 2019 Code on Wages Act), India's minimum wage system sets varying rates based on factors like location, industry, skill, and occupation. However, these rates often fall short of the actual cost of living in many areas. Imagine a minimum wage that barely covers rent, leaving little to nothing for food, healthcare, or education. This is the reality for many low-wage workers in India.

The Impact of Not Earning a Living Wage

When workers don't earn a living wage, they face a constant struggle to make ends meet. Here's how it affects individuals and families:

• Inability to Afford Basic Needs: Housing, nutritious food, and transportation become luxuries. Difficult choices are made between food and rent, healthcare and education.
• Debt and Stress: The pressure to meet basic needs leads to debt accumulation and constant financial stress, impacting physical and mental health.
• Limited Opportunities: The cycle of poverty continues. Without access to quality education and healthcare, low-wage earners struggle to break free from this cycle.

Challenges for Low-Wage Workers in India

The vast majority of India's workforce (over 90%) are in the informal sector, often lacking minimum wage protection. These individuals face even greater challenges:

• Unstable Income: Many low-wage workers rely on daily wages, making budgeting and planning difficult.
• Lack of Benefits: Health insurance, paid leave, and other benefits are often absent, leaving them vulnerable during emergencies.
• Poor Working Conditions: Safety standards and regulations are often lax, leading to higher risks of injuries and occupational hazards.

Global Momentum Meets Local Necessity, Not Just a Rebrand

The concept of a living wage has gained significant traction globally, culminating in a landmark agreement by the International Labour Organization (ILO) in February. This agreement, endorsed by the ILO's Governing Body in March, defines a living wage as "the wage level necessary to afford a decent standard of living for workers and their families, taking into account country circumstances and calculated for work performed during normal hours."

The ILO agreement emphasizes the importance of empowered wage-setting institutions and instruments, such as social dialogue and collective bargaining, in ensuring that governments and social partners progressively move from minimum wages to living wages. It also outlines principles for estimating living wages, including the use of evidence-based methodologies, consultation with social partners, and regular adjustments to reflect cost of living changes.

In addition to defining living wages, the ILO agreement mandates the organization to assist governments and social partners in evidence-based wage setting. This involves aiding data collection for wage discussions, offering technical support to determine living wage needs, and assessing relevant economic conditions upon request.

The agreement is expected to align with national and international efforts aimed at defining, estimating, and delivering living wages. This global momentum towards living wages was welcomed by the International Trade Union Confederation (ITUC) General Secretary, Luc Triangle, who described it as a "major victory for working people."

In the Indian context, the government has chosen to increase minimum wages and shift the burden of costs to businesses. The Centre will set standards and define minimum wages across industries, including for small businesses. However, given India's diversity, implementing these changes will be challenging.

The 15th Indian Labour Conference more than 60 years ago suggested norms for fixing minimum wages based on a per person intake of 2,700 calories per day, 18 yards of clothing per year, minimum housing rent as charged by the government for low-income groups, fuel and lighting expenses, and other miscellaneous items of expenditure. It recommended that all these factors should comprise 20% of the minimum wage.

Aligning with the ILO agreement, India's efforts to increase minimum wages and ensure a living wage for workers are crucial for meeting the Sustainable Development Goals (SDGs) by 2030. The goal of achieving decent work for all, as outlined in SDG 8, is directly linked to ensuring fair wages and improving living standards, making the ILO agreement a significant step towards international action on living wages and social justice.

A Promising Path with Bumpy Terrain?

India's proposed shift towards a living wage system by 2025 presents both exciting possibilities and significant challenges. Here's a breakdown of the feasibility and potential impact:

In 2019 and 2020, the Union government consolidated 29 central labor laws into four labor codes focusing on industrial relations, wages, social security, and occupational health and safety of workers. However, the full implementation of these labor codes is still pending.

Challenges:

• Ineffective Minimum Wage Enforcement: India's history with minimum wages is checkered. Enforcing them, particularly in the vast informal sector, has been a struggle. Replicating success with living wages may require a robust enforcement system and worker education.
• State-level Cost Calculations: Living wages need to be regionalized to reflect cost-of-living differences. This requires reliable data and transparent methodologies to avoid arbitrary calculations. Will a central minimum wage still serve as a floor for calculation?
• Business Impact and Job Losses: Increased labor costs could strain businesses, especially small and medium enterprises. Some may resort to automation or cutting back on hiring, potentially leading to job losses. Mitigating strategies like tax breaks or subsidies for businesses employing low-wage workers can be explored.
• Impact on Inequality: Living wages hold the promise of reducing income inequality, but the outcome isn't guaranteed. Rising wages could trigger price hikes, disproportionately impacting the poorest. To address this, living wages should be revised regularly to keep pace with inflation and reflect the actual cost of living with dignity in each state. This data-driven approach ensures living wages remain a tool for uplifting workers, not a source of further hardship.
• Legal Mandate and Implementation: The current legal framework empowers the central government to set minimum wages. Implementing a living wage may require revisions to existing laws and a clear distribution of responsibilities between central and state governments.

Potential Benefits:

• Increased Disposable Income: Higher wages lead to greater disposable income, boosting consumer spending and potentially stimulating economic growth.
• Improved Working Conditions: The focus on decent living could translate into better working conditions, as businesses recognize the value of retaining a skilled workforce. This could lead to regulated working hours, overtime pay, and reduced exploitation.
• Reduced Poverty and Gender Pay Gap: Living wages have the potential to lift many out of poverty, especially women who are often disproportionately affected by low wages. Closing the gender pay gap would be an important step towards achieving this.

Moving Forward:

• Collaboration: Collaborative Approach: The success of a living wage system hinges on a collaborative effort between various stakeholders. Open dialogue and data-driven decision-making are crucial for all parties involved, including the government (represented by ministries like the Ministry of Labour and Employment), industry bodies (like the Confederation of Indian Industry or FICCI), and worker representatives (such as trade unions like the Centre of Indian Trade Unions or CITU). While the International Labour Organization (ILO) can provide valuable expertise and technical assistance, a purely "top-down" approach relying solely on central government mandates and external consultations might not be the most effective solution. A "bottom-up" approach that incorporates local needs and perspectives is essential. This could involve regional consultations with worker collectives and industry representatives, alongside data collection specific to each state or region. By fostering a collaborative and data-driven environment, India can develop a living wage system that is both effective and responsive to the diverse needs of its
• Phased Implementation: A strategically phased implementation of the living wage system is crucial. This allows businesses, particularly small and medium enterprises, to adjust their financial structures and avoid drastic disruptions. Ideally, the initial phase could focus on a significant increase in the minimum wage, followed by a series of smaller adjustments over a set period. This staged approach provides businesses with time to adapt pricing strategies, automate processes where feasible, and invest in worker productivity enhancements – all while minimizing potential job losses. This measured transition prioritizes worker well-being while acknowledging the realities of business needs, making the living wage a sustainable long-term solution.
• Support for Informal Sector: A significant hurdle lies in extending living wage standards to the vast informal sector, which constitutes over 90% of India's workforce. Formalization initiatives, including labor card registration and social security programs, can be instrumental in bringing these workers under the umbrella of living wages. By integrating them into the formal economy, living wages can have a more widespread impact on worker well-being and poverty reduction.

Transitioning to a living wage is an ambitious but necessary step for India. While challenges exist, the potential for improved worker well-being, reduced poverty, and a fairer society makes it a worthwhile pursuit. Careful planning, collaboration, and a phased implementation approach will be key to navigating the bumpy terrain and realizing the full potential of this transformative policy.