Mockery of a Wage Floor

The national floor level minimum wage (NFLMW) of ₹ 178 announced by the labour minister defeats the purported objective behind the institution of the wage floor by not only disregarding approved criteria that guide the setting of a floor wage, but also by evading official procedures. The last revision, made in June 2017, had set the minimum wage at ₹ 176 per day, increasing it by 10% from ₹ 160 per day fixed in 2015 on the basis of the rise in the consumer price index of industrial workers(CPI–IW). By not taking into account the rate of inflation in the past two years, the current NFLMW, in real terms, would actually be a decline. Then, what is the purpose of setting a minimum wage?

Minimum wage and collective bargaining systems are labour market institutions that also exert an influence on the level and distribution of wages. Therefore, in general, as a feature of labour policy, the purpose of setting a national minimum wage is to enable workers to overcome poverty and to reduce income and labour market inequality. This is because minimum wage is usually set at a level that covers the needs of workers and their families, while also taking into account the rate of inflation. This, however, differs from collective bargaining, which can be used to set wages above the existing level, especially in the organised sector. According to the latest Economic Survey, “an effective minimum wage policy that targets the vulnerable bottom rung of wage earners can help in driving up aggregate demand, building and strengthening the middle class, and thus spur a phase of sustainable and inclusive growth.”