By Apalka Bareja and Vidhi Oberoi
India is gearing up for a significant shift in its approach to worker compensation. Instead of sticking to minimum wages, that barely covers basic needs, the country is aiming to adopt living wages by 2025. This move showcases commitment of the government to ensure that the workers earn enough to not just survive, but to live a dignified life. The move comes after the International Labour Organization (ILO) endorsed the concept earlier this month, following an agreement reached during a Meeting of Experts on wage policies in February and endorsed by the ILO’s governing body on March 13.[1] The decision, subsequently ratified by the ILO’s governing body[2], shows a global recognition of the importance of ensuring fair compensation for workers to sustain dignified livelihoods. As India embarks on this journey, it aligns itself with the international standards and reaffirms its commitment to prioritizing the well-being of its workforce.
Rationale behind the shift
The minimum wages often fall short of providing worker with enough income to cover their basic needs, such as food, housing, healthcare and education. This inadequacy, results in circle of poverty and economic vulnerability among the workers. In India, approximately 500 million workers are employed in the unorganized sector, where they typically earn a daily minimum wage of around 176 rupees or higher, with variations depending on the state. The national wage floor has remained stagnant since 2017. According to the report, the lack of enforceability across states has led to wage payment discrepancies.[3]
To overcome this issue, the Government of India enacted the Code of Wages, 2019, but pending implementation. The code proposes a universal wage floor which will be applicable to all the states upon enforcement.
This shift aims to address socioeconomic problems within the workforce. By ensuring that workers receive wages that aims to satisfy their basic needs, the goal is to reduce the income inequality and promote social justice. Fair compensation through living wages is seen as a crucial step for economic growth of the country.
India’s robust economic growth, with a rate of 8.4%, indicates the country’s capacity to support higher wages. Addressing worker concerns about the current minimum wage, which is seen as insufficient to meet basic needs, especially with inflation, is also a driving factor behind the shift.[4] When workers earn enough to meet their basic needs, they can actively participate in the economy as consumer, and thereby driving demand for goods and services and contributing to the overall economic prosperity.
Impact of the Shift
Implementing living wages in India by 2025 could have significant impacts. The following are the certain impacts which this shift can have on the workforce:
- Improved Living Standards for Workers: Implementing living wages would ensure that workers earn enough to meet their basic needs such as food, shelter and clothing. This would lead to an overall improvement in their quality of life, as they would have more financial stability and security.
- Reduced Income Inequality: By raising the minimum wage to living wage level, the gap between the lowest paid worker and higher income earners would narrow. This reduction in income inequality can contribute to a more balanced distribution of wealth within the society.
- Increased Purchasing Power for Workers: Higher wages mean that the workers have more income to spend on goods and services. This increased purchasing power can drive demand for products, leading to higher sales and potentially enabling the businesses to expand and create more jobs.
The overall impact would depend on how effectively the policy is implemented and its implications for different sectors of the economy. However, there are certain challenges which the government needs to address in its implementation.
Challenges in Implementation
Although the transition to living wage is a positive development, there are still some challenges to overcome. Implementing a national living wage framework, considering the different cost of living across states, will require careful planning.
Additionally, certain businesses, particularly small and medium enterprises, might encounter financial difficulties due to higher labour expenses. Another significant obstacle in enacting a living wage system is disparity in living expenses across various regions of India. The cost of living differs greatly among cities, states, and even districts, posing difficulties in setting a standardized living wage rate.
Difference between the Minimum Wage and Living Wage
| Basis | Minimum Wage | Living Wage |
| Definition | The minimum wage is the lowest amount of remuneration required by the law to be paid by employers to employees for work performed during a given period. | The living wage is a remuneration that not only enables individuals to afford basic necessities but to also maintain a decent standard of living. |
| Calculation Basis | Minimum wages are calculated based on factors such as the state, worker’s skill level, nature of their work etc. | Living wages are calculated on the basis of national income and the paying capacity of the industry. |
| Scope of Coverage | Minimum wage rate vary across state and union territories in India, with different rates applicable for unskilled, semi-skilled and highly skilled workers and are subject to periodic change. | Living wages will be uniform for all the workers across India, irrespective of their status. |
| Purpose | The main purpose of the minimum wage is to ensure that the workers are receiving a wage that is enough to fulfil their basic needs. | The main purpose of the living wage is to not only to satisfy the basic needs but to increase the standard of living of the workers and their families. |
| Government Role | The government legislation establishes minimum wage standards. | Government must push beyond the minimum wage law and consider drafting comprehensive policies that take into consideration the cost of living of the workers. |
Conclusion
India’s ambitious plan to shift from minimum wages to living wages by 2025 represents a crucial step towards ensuring fair compensation and dignified livelihood for its workforce. The rationale behind this shift lies in recognizing the inadequacy of minimum wages in meeting the basic needs of workers. By adopting the living wages, India aligns itself with the international labor standards and underscores its commitment to sustainable development. However, the implementation of living wages poses significant challenges which needs to be addressed. With collected efforts, India can realize its goal of fair compensation for all its workers.
Ritvik Kashyap, Intern at S.S. Rana & Co. has assisted in the research of this Article.
[2]https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_918717/lang–en/index.htm#banner
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