One of the Modi government’s important reforms is labour reforms. Some steps have been taken for improving ease of doing business and protect workers’ interests and rights, but a lot needs to be done. A major thorny issue has been fixing of minimum wages for various sectors and sub-sectors. Argument is being made that if minimum wages are fixed the employers reduce the number of jobs in order to meet staff cost. In this view, fixing of minimum wage is considered to have negative implications for the young graduates and school certificate holders as it makes it harder for them to get jobs. Minimum wage is also said to work against the unskilled workers, as employers are neither willing to pay them the “higher salaries” that they think only skilled workers deserve nor to train them in the skills they need, because training involves time and investment.
Minimum wage is also seen as having negative impact on small businesses because they do not have the income and capacity to pay higher minimum wages. Seen from this point of view setting minimum wage is anti-economic growth. According to it, minimum wage raises the costs of goods and services as businesses have to cover the costs of higher wage bills. The summing up of this argument is that while minimum wage raises the wages of labourers they have to pay more for the goods and services they avail: so the net result is no gain for the employers or labourers! The real wage remains the same. Minimum wage has only ended up in making life more expensive for everybody. And if minimum wages keep rising a point will be reached when businesses would reach the upper limit of hike in the prices of their goods and services. That will mean stagnation as businesses will not get extra income to invest in expansions or new businesses. Minimum wages therefore halt economic progress!
The main point in the case against minimum wages is that merit will find its worth in the eyes of the employer. However, in reality it does not happen. If there is no third party to decide what the minimum worth of a worker with a particular skill in a particular sector is, the workers would not get justice. In a country ridden with poverty like India, that might be more true than in developed countries where workers of the lower, manual works get comparatively high wages in view of the dearth of hands for those services. Minimum wage is necessary therefore to reduce poverty in India. It is also necessary to reduce crime, as poor income drives men to commit theft and robbery in order not only to get money for the survival of themselves and their families but also to avenge the injustice done to them by the society in keeping them poorly paid. The key purpose of fixing minimum wage is to let workers have sufficient money to meet their basic needs. Minimum wage recognizes workers as human beings and equal citizens, rather than as objects that can be used like animals for production. It is only after workers meet their basic needs that they can be good and productive workers and contribute to the business positively.
A happy and satisfied workforce also means the employer can grow his output and business with their active participation. Enlightened sections of business understand that if the workers are paid minimum wages – that is wages according to their worth – they spend money to buy products which pushes up the demand for goods and services. Thus minimum wages does not help the development only of the business the workers enjoying the minimum wage are employed in but also of the businesses supplying other goods and services. That actually makes a healthy cycle: More money in the hands of the employees means more spending and more spending means development of businesses which means even more money for the workers.
However, for this healthy cycle to go on, the State has to play an important role. If the workers are not given protection, labour reforms would come to mean anti-labour reforms. In the strict free market terms, labour reforms means reforms that make it easier for the employers to hire and fire and to fix their wages according to the merit. Employers decide on the wages not in accordance with the employees’ worth only but also on the basis of overall staff cost and cost of production and the pricing of their services or products. They also decide wages in terms of the market conditions. If they are bad, the wages are low. That is why minimum wages are