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:
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:
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:
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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:
Challenges:
Potential Benefits:
Moving Forward:
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.