Minimum Wages and Informal Labour

in Rural India
1.1 Introduction

1.1.1 Introducing Rural Labour in India

As per the report of National Commission on Rural labour which was formed by Government
of India in 1991, Rural Labour is defined as

“A person who is living and working in rural area and engaged in

agricultural and/or non-agricultural activities requiring physical labour and
getting wages or remuneration partially or holly, in cash or kind or both during the
year or such own account workers like small farmers and artisans who are not
usually hiring in labourers but are a part of the petty production in rural areas.
(Gupta, 2009)”

In terms of the all India pattern of rural employment, there has been sectoral shift with the
proportion of male workers engaged in the primary sector steadily declining from 83.2% in
the 1972-73 to 74.5% in 1987-88 and to 71.4% in 1999-2000. (Singh, 2009)

On the other hand, the proportion of male workers in secondary, tertiary and non-farm sectors
has witnessed a steady increase. (ibid.) For females the trend in sectoral shift is less sharp in
particular during the post 1987 years, indicating their relative inability to gain access to jobs
in the secondary and tertiary sectors. (ibid.)

Rural Labour, which constitutes a large section of the work force in India, is probably the
most deprived and disadvantaged group in this country. The poor in India are over
whelmingly concentrated in rural areas, engaged in agriculture and non-agriculture
occupations. (Gupta, 2009)

The emergence of the rural non-agricultural sector as an important source of output and
employment holds the prospects of a spatially broad-based and environment friendly growth
conducive to the well-being of the rural poor. (Sankaran, 2016) India was no exception to ths
process of structural transformation towards greater dependence onnon-agriculture and
contribution of agriculture to GDP declined considerably over the years. (Saha and Verick,

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2016) But this decline in the share of GDP did not lead to the decrease in the agricultural
employment. However, in India, even though agriculture remained the mainstay of Rural
Livelihood, increasingly rural households are engaging in diversified economic activities.
Also, with increasing land fragmentation and rising demand for land for non-agricultural
purposes, capacity of agricultural sector to provide livelihood security is increasingly getting
difficult. (ibid.)

A variety of occupations are observed in rural India ranging from farming to mining and
quarrying and also business. Figure 1 shows the share of various occupational engagement of
workforce in rural areas in the year of 2004-05. There are various features of rural labour.

Figure 1: Percentage of Workforce in Various Occupations in Rural India (2004-05)

70 65
60
50
40
30
20
10 7 6 8
5 3 4
1 0 1
0

Percentage of Workforce

Source: The World Bank, (2010)

There are various features which can be seen in the rural labour market as explained in
Gupta, 2009:

1. Negligible employment opportunities outside the local agricultural sector for

members of agricultural labour households.
2. Casual Labour, generally hired on a day to day basis, is the dominant kind of labour
contract.

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3. The daily wage rates associated with different forms of wage payments differ in a
great extent i.e. daily wage, harvest share, piece rates etc.
4. No difference in the wage rate for a good worker and a poor worker i.e. uniformity of
wages among the adult labourers of a particular gender.
5. Though there are differences in the daily wage rates for agricultural labourers, still a
farmer does not recruit labour from outside his own village and also the labourers do
not look for employment in the neighbouring village and hence farm labour market is
closed by the village boundary. People who look for employment outside their
village mostly look for employment in distant agricultural fields like in Punjab or
they go for non-agricultural occupations. (Gupta, 2009)

1.2 Historical Overview of Minimum Wages

1.2.1 Emergence of the Minimum Wages globally

Minimum wages were first introduced in the early 19th century. Currently about 90 per cent
of all countries have statutory minimum wages. However, minimum wages can be set in
different ways and can have fundamentally different roles in different countries. They can be
set on an hourly or monthly basis for all employees. But minimum wages can also be
differentiated according to industry, profession, age, region, etc. They can be set by
governments and through the collective bargaining process if the negotiated wages are
declared binding for all firms in an industry. They can be set autonomously by the
government with or without consultation with trade unions and employers’ associations or
automatically following a certain rule of law.

While in some instances they may have only a symbolic meaning if they are unrealistically
low, they also can be effective and important for a substantial number of employees. Unions
may be in favour of minimum wages or against their introduction. Minimum wages must
ultimately be judged as part of general labour market institutions which reflect a country’s
specific developments and constellations. (Herr, Kazandziska & Praprotnik, 2009)

When the International Labour Organization was established, minimum wages had only been
set in a few countries such as Australia, France, New Zealand, Norway and the United
Kingdom, and it was only for few sections of workers. The Article 427 of the Treaty of
Versailles which referred to “the payment to the employed of a wage adequate to maintain a

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reasonable standard of life as this is understood in their time and country” among the general
principles became the guiding policy of the future ILO. (ILO, 2014)

Further the Minimum wage systems report by ILO states that

―Based on the principle, ‗poverty anywhere constitutes a danger to

prosperity everywhere‘, the Declaration recognizes the solemn obligation of the ILO to
further among the nations of the world, programmes which will achieve, inter alia,
―policies in regard to wages and earnings … calculated to ensure a just share of the
fruits of progress to all, and a minimum living wage to all employed and in need of
such protection.”(ILO, 2014)

Further in 1945 concerning this resolution and with the aim of maintenance of full
employment during the period of industrial rehabilitation and reconversion, the International
Labour Conference recommended

“the establishment of appropriate minimum wage standards, adequate for

satisfying reasonable human needs‖ in order to ―assist the progressive raising of the
standard of living of all workers”. (ILO, 2014)

Minimum wages constitute a theoretical and political issue in both developing and developed
countries. In both groups statutory minimum wages cover the formal sector of the economy;
that means the sector in which statutory provisions are at least more or less followed. In both
groups of countries an informal sector exists which is beyond the direct reach of statutory
provisions. Typically, in developing countries the informal sector is much bigger than the
formal sector. However, minimum wages may also influence wages in the informal sector
indirectly.

Over the past several decades minimum wages have steadily gained importance. In many
cases this reflects the weakness of unions which have been unable to prevent very low wages
compared to the national average wage in some segments of the labour market. To a certain
extent minimum wages became a substitute for efficient wage bargaining between trade
unions and employers’ associations. (Herr, Kazandziska & Praprotnik, 2009)

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 1.2.2 Minimum Wages in India

Before the Minimum Wages Act of 1948, there has been a different act on wages such as
‘The Payment of Wages act of 1936’ in India which states that the employer has to provide
the wages to the employee within a certain time period and failure in doing so will lead to
punishment as per the law. This act has been amended with the due course of time. In 1948,
the government of India came up with the ‘Minimum Wages Act’ which is mainly for the
people in unorganised condition and are very vulnerable to exploitation.

The minimum wages act specifies the exact meaning of ages and also specifies what the areas
it does not cover are. It1 states:

"wages" means all remuneration, capable of being expressed in terms of

money, which would, if the terms of the contract of employment, express or implied, were
fulfilled, be payable to a person employed in respect of his employment or of work done
in such employment, and includes house rent allowance, but does not include—

(i) the value of--(a) any house-accommodation, supply of light, water, medical
attendance, or (b) any other amenity or any service excluded by general or
special order of the appropriate Government;
(ii) any contribution paid by the employer to any Pension Fund or Provident
Fund or under any scheme of social insurance;
(iii) any travelling allowance or the value of any travelling concession;
(iv) any sum paid to the person employed to defray special expenses entailed on
him by the nature of his employment; or
(v) any gratuity payable on discharge;” (GOI, 1948)

After the formulation of the Minimum Wages Act, Government of India in 1948 appointed a
Central Advisory Board which would function as an advisor of government on issues relating
to payment of Fair wages to labour and fair return on the capital employed. (Government of
India, 2005 URL) Further this central advisory committee formed a tripartite committee
called the fair Wage Committee. This committee is responsible to determine the principles on
which the minimum wages should be based on. (ibid.) The major breakthrough made by this
committee was the distinction between 3 levels of wages i.e. minimum wage, fair wage and

1
Minimum Wages Act 1948

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living wage. As per the committee, minimum wage is usually fixed for industrial occupation
where the workers are very vulnerable to exploitation.

The major principles of Minimum Wages Act of 1948 is derived from the Article 43 which
states that

“The state shall endeavour to secure, by suitable legislation on economic

organisation or in any other way, to all workers, agricultural, industrial or otherwise,
work a living wage, conditions of work ensuring a decent standard of life and full
enjoyment of leisure and social and cultural opportunities in particular”. (Srija, 2014)

Further, the Article 39 of Indian Constitution states that

“the state shall, in particular, direct its policy towards securing (a) that the citizen,
men and women equally shall have the right to an adequate livelihood and (b) that there is
equal pay for equal work for both men and women”. Ibid.

The process of defining minimum wages (as showed in Figure 2) has started since 1920. In
1920, the idea of having minimum wages in different industries was growing and a proposal
was put forward for the same. Further in 1928, International Labour Organisation mentioned
in 30th recommendation of Convention no 26 about wage fixing machinery in trades or parts
of trades.

Figure 2: Timeline of Minimum Wage Act Formulation

1920
Proposal for setting board for determination of minimum wages in each industry

1928
ILO convention 26: wage fixing machinery in trades

1943
Formulation of labor investigation committee.

1945
A draft bill proposed in Indian Labor Conference

1946
Recommendation of separate legislation for unorganized sector

1948
The Minimum Wages Act came into force

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As per the recommendation made by Standing Labour Committee and Indian Labour
Conference2, in 1943 a Labour Investigation Committee was appointed who was assigned to
investigate the wage matter along with the issues such as housing, social condition and
employment. A draft bill about the wages and other conditions of working class was
proposed in 1945 by Indian Labour Conference. Later in 1946, the standing labour committee
recommended separate legislations specifically for unorganised sector which would specify
the wages to be given along with the working hours and also paid holidays. And finally a
Minimum Wages Bill was passes in 1946 in the central legislative assembly for certain
employment sectors and came into force in 1948.

This act has been further modified as per the need of different state government as the wages
differ from time to time and place to place. In India the minimum wages is different for
different sector, and each sector is governed by either central government or the state
government. Hence the Govt. is termed as the Appropriate Government 3. As of now, there
are total 45 occupational categories under the central government and 1679 occupational
categories under state government4.

1.3 Factors in Evolution of Minimum Wages Act

Two independent factors play important roles in establishment of and evolution of Minimum
wages i.e. State of collective bargaining and Use of Minimum Wage as a tool for economic
policy. (Eyraud & Saget, 2005) When collective bargaining is not well developed, the
influence of a statutory minimum wage system will be more pronounced, resulting in a wider
scope of application in terms of both sectors and different categories of workers covered.
Similarly, intensive use of the minimum wage by a government with a view to realizing
various economic policy objectives will lead it, willingly or otherwise, to reduce the role of
collective wage bargaining in order to better control its development. On the contrary, a well-
established collective bargaining process results in government intervention being excluded
or limited to the protection of the lowest-paid wage earners.

Two major factors should be considered while making the minimum wages.
2
The Indian labour conference is the apex level tripartite consultative committee in the Ministry of Labour and
Employment. Its main function is to advise the government on the issues of the working class of the country.
The 1st ILC was held on 7th august 1942 and 46 session have happened since then.
3
Appropriate Government: (i) in relation to any scheduled employment carried on by or under the authority of
the Central Government or a railway administration or in relation to a mine, oilfield or major port, or any
corporation established by a Central Act, the Central Government is the appropriate govt, and (ii) in relation to
any other scheduled employment, the State Government is the appropriate govt. ;(Government of India, 1948)
4
ILO, 2014

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 I. The actors involved. What are the extent of government intervention and the role of
collective bargaining and the social partners? Between a minimum wage set by a public
authority and one set solely through bipartite bargaining there is a series of intermediate
situations characterized by more or less binding consultations between the State and the
social partners.
II. The number of minimum wage rates. A single national rate should be distinguished
from a multitude of rates set according to sectors and/or occupations. Between a system
with one rate that applies nationwide and systems with hundreds of rates there is a wide
range of situations, attesting to the different roles played by the minimum wage.

The attraction of this type of classification is that it allows for a description of the different
systems, based on a combination of these two factors, moving from the simplest to the most
complex system. Eyraud & Saget in their book ‘Fundamentals of Minimum Wage Fixing’
mentioned 4 categories of minimum wage fixing depending on type of rate in the country or
defining region and the decision maker i.e. government or the collective bargain method.

i. One base rate for the whole country or per region, with the State as the key decision-
maker.
ii. Multiple rates that vary by sector and/or occupation, with the State as the key decision-
maker.
iii. One base rate for the whole country or per region, determined by collective bargaining.
iv. Multiple rates that vary by sector and/or occupation, determined by collective
bargaining.

In India we follow a tripartite method to mix the minimum wages i.e. with advisory boards
and committees. As mentioned earlier, section 3 of the minimum wages act requires that the
appropriate government should fix the minimum rates of wage payable to employees
employed in an employment specified in part I or part II of the schedule and in an
employment added to either part by notification under section 27. Appropriate government
has different definition as per minimum wages act and definition as per Industrial Disputes
Act and Contract Labour Act. As per the act, minimum wage is not fixed in respect of all
employments. Foe fixation of minimum wages for an employment the basic requirement is
that it should be included in the schedule to the Act. In the initial stage, only 13 employments
were only included in the schedule. Subsequently many more employments have been added
to the list from time to time by notification under Section 27 of the Act. The number of

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employment added to the schedule varies from state to state. In the eighth Five Year Plan it
was stated that

“A rational and equitable wage policy has been conspicuous by its absence for
quite some time. Statutory provision of minimum wages for workers in the scheduled
employment exists but its coverage and implementation has been inadequate, so that a
large part of the workforce is still outside the purview of wages fixed under the
Minimum Wages Act, and the actual wages on the ground are often much lower than
those fixed by appropriate government under the Act.” (Singh, Subrahmaya 2010)

But there are always conflicts of ideologies. The empirical studies show that the observed
earnings differences between workers were associated with differences in education and
experience; earnings differences might also arise by personal characteristics of the
individuals such as the sex and the community to which he/she belongs. With the due course
of time the wages have increased in both formal and informal sector but the increasing ratio is
not same.

1.4 Major debates since 1948

Wages and earnings increased across the board in the 1990s, leading to a decline in the
numbers of the working poor. In a country like India, looking only at employment rates can
be misleading as most of the workers especially males, have no option but to take up any
work for survival. There is a huge under-employment, specifically in subsistence farming and
in low productivity jobs in the informal sector. (The World Bank, 2010) Hence, it is
necessary to look at the earnings of people rather than looking only at the fixed wage rates.

As we can see in table 1 which shows Average wage rate received by formal and informal
wage worker in both formal and informal sector, the increasing pattern in 1999-2000 to 2009-
2010 is significantly different. It is easily observed that the formal wage workers in both
sectors earn more than the informal wage workers. But if we see the percentage of increment
then the wage of informal wage worker in informal sector increased only by 31% where-as
the wage of formal wage worker in formal sector increased by 122.34%. The table 1 below
shows the percentage increase in average wages received by workers in different sectors.

Table 1: Average Wage Received Per Day in India, 1999 - 2010

Informal Wage Worker Formal Wage Worker
1999 - 2009 - % 1999 - 2009 - %

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 2000 2010 increase 2000 2010 increase
Informal
64 84 31.25 134 252 88.06
Sector

Formal Sector 80 129 61.25 188 418 122.34

Source: Kumar, M., Ranjan, R. (2015)

If we see the WRRI report of Nov, 2013 for agricultural and non-agricultural wages in rural
India, then we can see that the highest average wage provided to men in agricultural
occupation is in Plant Protection worker (Rs. 288.77) and for coastal fishermen it is
Rs.348.00. For women in agricultural occupation, Rs. 182.81 is the highest wage in
Ploughing and Tilling though the female participation in these tasks are very low, and for
children the highest wage is Rs. 153.69 which they receive for harvesting and threshing. In
non-agricultural occupations, Men plumbers make the highest wage i.e. Rs. 397.69, women
involved in Sweeping and cleaning work make the highest wage of Rs. 188.87 and children
involved in construction work make the highest wage i.e. Rs.146.67. Below shown is the
table which states the highest and lowest wages provided in both agricultural and non-
agricultural occupations identified by Dr. T.S. Papola committee.

Further if we talk about rural wages, they are mainly driven basically by rising demand for
labour emanating from growth in agriculture as well as the overall GDP. (Sankaran, 2016)
The agricultural wages in Rural India are specifically sensitive to the growth of Agricultural
GDP. Though there is rise in rural wages during 2005-6 to 2010-11, it cannot be explained
completely by the growth in agricultural and overall GDP. Rural labour, being unorganized
and consisting largely of those living below the poverty line, have a low staying power and
hence low bargaining power. Social security measures like pensions, public distribution of
food grains, provision of health care, etc., targeted at them have a potential to raise their
bargaining capacity by improving their staying power. Mahatma Gandhi National Rural
Employment Guarantee Programme (MNREGA)launched during this period, and effectively
implemented in quite a few states, is widely believed to have contributed significantly to
raising the rural wages, especially agricultural wages, by improving the bargaining power of
rural labour.

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Table 2: All India Average of wages Received in Agricultural and Non-Agricultural Occupations, 2013

Agricultural Occupations Non- Agricultural Occupations

Highest Task Lowest Task Highest Task Lowest Task
Wage Wage Wage Wage
Animal
Plant Husbandry
Men 288.77 Protection 183.26 (Poultry, 397.69 Plumber 164.20 Beedi Maker
Worker Dairy,
herdsmen)
Animal
Husbandry
Ploughing Sweeping
Women 182.81 138.33 (Poultry, 188.87 116.41 Beedi Maker
and Tilling and Cleaning
Dairy,
herdsmen)
Animal
Harvesting Husbandry
Construction
Children 153.69 and 67.74 (Poultry, 146.67 72.00 Beedi Maker
work
Threshing Dairy,
herdsmen)

Source: WRRI, Nov 2013

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Further if we see the minimum wages data of 2013, then we can see that the Labour Bureau
identifies minimum wages in 3 different types of area. Area-C mainly depicts the rural areas.
Below shown is the table which states the minimum wages defined by the appropriate
government in few sectors. (Government of India, 2015)

Table 3: Minimum Wages in Different Sectors

Sector Minimum wages

Agriculture 182.00

Construction/ Maintenance of Roads

207.00
and Building operations

Sweeping and Cleaning 207.00

Source: WRRI, Nov 2013

Recently, workers from all over India from various sectors have come together for an all
India level protest for their rights and demands. On 30th March 2016, in National Convention
of Workers Meeting in Delhi, Union leaders called for strengthening and widening the unity
of working people and the struggles against the anti-worker and anti-people policies of the
government. The anger was the result of ignorance shown by the NDA government to the 12
point demands formulated by central trade unions. Two of the major points of discussion
among the 12 demands were to raise the minimum wages to Rs. 18000 per month along with
assured pension not less than Rs.3,000 per month for the entire working population.

Apart from the variation in the wage rates and wage earning, one of the major questions
which arise is how the skill of a person is mapped. In India, wages are defined as per 4 skill
differentiation i.e. unskilled, semi-skilled, skilled and highly skilled. But there is no proper
definition of these terms. The labour bureau in one of its document for Bidi Industry
explained 3 different skills by occupation. The occupations such as Driver of heavy vehicle,
accountant, Munim, Cashier, Store Keeper, head Clerk, Godown keeper etc. are termed as
skilled occupations. Occupations such as Sorter/Checker, Bhattiwala, Driver of Light
Vehicle, Typist, Billman, and Clerk are termed as Semi-skilled Occupations. And

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occupations such as loader, un-loader, puda maker and security guard are termed as unskilled
occupations. (GOI, 2001)

1.5 Determinants of Minimum Wages in India

If we see the determinants of wages, there are several factors such as nature of job, mode of
payment, hours of work, other facilities, rice level, working condition, social status etc. But
many of these factors do not seem to work with casual labours or daily wage labour in both
agricultural and industrial sector. They get very less wage than what they need for survival.
The Minimum Wage Act of 1948 was specifically made for the labour from the unorganised
sector though it states that the wage would vary on the basis of sectors, region, skill etc.

As per the 15th Indian Labour Conference, 1957 the Minimum wages in any sector is to be
calculated with standard working family. The standard working family is defined as a family
of 4 members with one earning person, spouse of that person and two children. And the
determinants of the minimum wage is defined as

1. 2700 calories per day per consumption unit

2. Per capita consumption of 18 yards clothes per year that sums up to 72 yards of
clothes for the whole family
3. 20% of the minimum wage should constitute housing rents charged by government
for low income group, fuel, lighting and other miscellaneous items of expenditure.

The labour law and as stated earlier Article 39 of the Indian Constitution states that the wages
for men and women should be same for the same work. But this law has not really been
applied in the sectors especially in unorganised sector where men are paid more than women.
Still we can see a lot of inequality in the field of wage payment. Minimum wages are further
determined as per the geographical location and as per the occupational structures. Earlier in
1974, there were 11 Agricultural occupations and 7 non-agricultural occupations defined by
Government of India as occupations in Rural India. These occupational structures remained
the same from 1974 to 2013 and NSSO used these occupational structures to find out average
actual wage provided to people (men, women and children).

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Table 4: Occupational Structures in India, 1974
Agricultural Occupations Non-Agricultural Occupations
1. Ploughing 1. Carpenter
2. Weeding 2. Blacksmith
3. Sowing 3. Cobbler
4. Transplanting 4. Mason
5. Harvesting 5. Tractor Driver
6. Winnowing 6. Sweeper
7. Threshing 7. Unskilled Labour
8. Picking
9. Herdsman
10. Well Digging
11. Cane Crushing

Source: WRRI, 2012

In 2011, the PMO requested Ministry of Labour & Employment to revise the categorization
of workers based on certain observation in categorisation of agricultural and non-agricultural
occupations so as to capture the changes that have taken place in the occupational structure of
rural labour since its categorization in 1974. Labour Bureau took up the matter to Central
Statistics Office (CSO). CSO with advice of National Statistical Commission (NSC)
constituted a working group under the chairmanship of Dr. T.S. Papola for careful study on
categorisation of occupation. Finally the committee came up with 12 Agricultural Occupation
and 13 Non-Agricultural Occupation. (WRRI, 2013)

Table 5: Occupational Structure in India, 2013

Agricultural Occupations Non-Agricultural Occupations
1. Ploughing/Tilling workers 1. Carpenter
2. Sowing (including Planting/ 2. Blacksmith
Transplanting/Weeding) workers 3. Mason
3. Harvesting/Winnowing/Threshing 4. Weavers
workers 5. Beedi makers
4. Picking workers (including Tea, 6. Bamboo, cane basket weavers
Cotton, Tobacco and other 7. Handicraft workers
commercial crops)

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 5. Horticulture workers (including 8. Plumbers
nursery growers) 9. Electrician
6. Fishermen-inland 10. Construction workers (for roads,
7. Fishermen-coastal/deep-sea dams, industrial & project
8. Loggers and wood cutters construction work and Well diggers)
9. Animal husbandry workers (including 11. LMV & Tractor drivers
poultry workers, dairy workers and 12. Non-agricultural labourers (including
herdsman) porters, loaders)
10. Packaging labourers, agriculture 13. Sweeping/cleaning workers
11. General agricultural labourers
(including watering/irrigation
workers, etc.)
12. Plant protection workers (applying
pesticides, treating seeds, etc.)

Source: WRRI, 2013

When the minimum wages are defined, it uses three variable i.e. skill, occupation and
benefits provided with wages (employment in establishments). In skill it considers 3
categories i.e. Skilled, Semi-skilled and Unskilled; and for occupation it considers the above
mentioned agricultural and non-agricultural occupations. (Govt. of NCT of Delhi, 2016)

When the states define the Minimum wages for themselves, they use different factors for
defining the wages. One of them is the National Minimum Wage Floor. One step in this
direction was made when the Central Government introduced the concept of a national floor
level minimum wage in 1996, which is to be revised every year. The original level of Rs. 33
per day was calculated by reference to the works of the National Commission on Rural
Labour, which defined in 1991 the minimum wage as a minimum subsistence wage, which
must be paid to workers by all employers on socioeconomic considerations. It was argued
that if the worker was paid below the minimum wage, his efficiency would suffer and, as a
result, productivity would decline. The poverty line estimates were utilized for determining
the minimum wages. However, to this day, the national minimum floor wage does not have
any statutory backing, which means that while the Central Government can prescribe a
national floor level, it is not binding on the states. Trade unions have pointed out that with
this weak instrument, the Central Government can only play an advocacy role. It remains up

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to state governments to be persuaded to fix minimum wages such that in none of the
scheduled employments, the minimum is less than the national floor.

The Central Advisory Board constituted a Working Group in 2003 to look into concepts,
norms and parameters of wage fixation. This Working Group arrived at Rs. 66 11 as the
national minimum wage floor, and recommended that this wage would replace the different
state-level minimum wages for all different schedules of employment. This national
minimum wage floor fixed by the Government of India was made effective from February
2004, but it had no legal backup. (Belser & Rani, 2010)

National Floor Level Minimum Wage (NFLMU) has been revised upwards from existing
Rs.137 to Rs.160 per day w.e.f. 01.07.2015. In a letter written to all the Chief Ministers and
LGs today, Shri Bandaru Dattatraya, the Minister of State for Labour and Employment has
urged to take necessary steps for fixation/revision of the minimum rates of wages in respect
of all scheduled employments in State/UT not below the NFLMW of Rs. 160/per day w.e.f.
01.07.2015. The Minister has also emphasized to ensure implementation of various
provisions of the Minimum Wages Act, 1948 so that the objective of ensuring Minimum
Wages to workers is fulfilled.

Table 6: National Minimum Wage Floor

Year Rate of Wages

1996 35

1998 40

1.12.1999 45

1.9.2002 50

1.2.2004
66

1.9.2007 80

1.11.2009 100

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1.4.2011 115

1.7.2013 137

1.7.2015 160

Source: Retrieved from the Labour and Employment Department, Odisha (Undated)

Along with the factors explained above as the determinants of the minimum wages there is
one more factor which plays an important role in determining the wage of a person i.e. Skill.

1.5.1 Skill and minimum wages

As defined in the gazetted document of Government of Odisha,

“Unskilled work means work which involves simple operation requiring little
or no skill or experience on the job.

Semi-skilled work means work which involves some degree of skill or

competence acquired through experience on the job and which is capable of being
performed under the supervision or guidance of a skilled employee and includes un-
skilled supervisory work.

Skilled work means work which involves skill or competence acquired through
experience on the job or through training as an apprentice or in a technical or
vocational institute and the performance of which calls for initiative and judgement.

Highly Skilled work means work which calls for a high degree of performance
and full competence in the performance of certain tasks, acquired through intensive
technical or professional training or practices, work experience for long years and
also required for workers to assure full responsibility for the judgement or decisions
involved in the execution of these tasks.” (Government of Odisha, 2015)

As these skills are defined by the government of Odisha, there are few debates which revolve
around these statements. For example, the weavers receive the payment in terms of per piece
payments which accounts for Rs. 150. But as per definitions of the skills of the labour, the
weavers can be termed as semi-skilled or skilled as those activities cannot be done without
years and years of experience and practice. If we see the educational qualifications of the

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weavers then out of the sample of 23, 17 have studied up to primary education as they have
started working since then because of which they have mastered the art of making handloom
sarees and other products.

None of them have any technical education about weaving but what they do is a work of
great patience and expertise which cannot be mastered by any ordinary person suddenly. If
we analyse the statements in which different skill sets are defined, then we can see that rather
than defining what the person or the labour has, it majorly talks about the work assigned to a
particular designation. For example, labour who work as daily wage labour in construction
sites, they are termed as unskilled and are paid as per that because they don’t have any scope
for any kind of decision making process nor they need any kind of education or technical
qualifications for performing those works.

Further there are no such guidelines regarding per piece wage rates which prevails in
handloom sector and other small scale handicraft industries which leads to further
undervaluing of their labour. Such situation also exists in case of agricultural labour. But in
that case the major discrimination exists in terms of gender.

In Indian context particularly talking of formal and informal workers employed in the formal
sector, the minimum wage policy seems to achieve its objective. But in country like ours
where majority of the population is engaged in informal sector like agriculture, the minimum
wage policy fails to make the desired impact, this may be attributed to the lack of Monitoring,
Audit etc. mechanism in the informal sector leading to high degree of exploitation faced by
them, in contrary these mechanisms are effective in the formal sector.

The lack of monitoring system in the informal sector leads to difference in wages paid to men
and women for the same work which in itself is unconstitutional, one can see the wage
difference trends between the rural and urban counterparts for the same nature of work and as
said before, such cases also exist in case of those industries who pay per piece rates to the
labour.

1.6 A Cross Country Analysis of Wages in Other Developing and Developed

Nations

This section will try to analyse the conditions and implementations of the concept of
Minimum Wage in various developing and developed countries. To start with, I will talk
about a small country Malaysia. It has a population of 30,949,962 as of July 2016. It has
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14.77 million labour-force in which 11% work in Agriculture, 36% work in industries and
rest 53% work in service sector. (CIA, URL) It has a very clear calculation for determining
the Minimum Wage. (Formula 1) (Government of Malaysia, URL)

Formula 1: Minimum Wage Calculation in Malaysia

MW = PRTi {(IPL/AWH) + WM} * {1+(PG/100)+(CPI/100)+(UE/100)}

MW: Minimum Wage PG: Productivity Growth

IPL: Income Poverty Line CPI: User Price Index

AWH: Average Worker Per Household UE: Level of Unemployment

WM: Wage Mediator i: Territory

Further, the minimum wage in Malaysia is defined in per month basis. (Government of
Malaysia, 2012) As per the Government of Malaysia Ministry of Human Resource,

“the minimum wage policy helps to increase salaries in line with cost of
living. Further for Employers, the minimum wage policy will encourage firms to
invest in technology that will help increase the production chain and thereby
improving productivity and competitiveness. Thus policy aims to transform the
economy from labour-intensive to capital-intensive through automation and
mechanization as well as help the country become a high-income economy by
2020.” (Government of Malaysia, URL)

Next we will see the effect of minimum wage policy in the most populated country in this
world i.e. China. It has the population of 1,373,541,278 with the labour force 805.9million.
out of the total workforce, 33.6% work in agriculture sector, 30.3% work in industrial sector,
and rest 36.1% work in service sector. (CIA, URL)

Since China enacted its first minimum wage law in 1994, the magnitude and frequency of
changes in the minimum wage have been substantial, both over time and across jurisdictions.
Raising the minimum wage has been one of the Chinese governments’ most important labor
market interventions.

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Since adopting the “New Minimum Wage Regulation” in 2004, the nominal minimum wage
has increased significantly, with average growth of 11 percent per year nationally. (Panknin
& Randolph, 2015)

The 1994 legislation required that all employers pay wages no less than the local minimum
wage. Further, all provincial, autonomous regions, and municipal governments were required
to set the minimum wage according to six principles as mentioned in Pankin & Randolph,
2015:

a. the cost of basic living expenses of workers;

b. the average number of dependents workers support;
c. local average wages;
d. the level of labour productivity;
e. the level of local employment; and
f. the level of economic development. (ibid.)

This research on China shows that when the minimum wage increases rapidly – an 11 percent
per year growth rate since 2004 – the effects are significant. China’s experience illustrates
that rapid increases in minimum wages have led to an increase in average wages and a
reduction in the gender wage gap and income inequality. However, the fast rising minimum
wage has resulted in job losses for young adults, women, and low-skilled workers. (Pankin &
Randolph, 2015)

Next let’s see another developing country Brazil. It has a labour-force of 110.4 Million.
Among these 110.4 million labour force, 15.7% labour force is engaged in Agriculture,
13.3% are engaged in Industrial sector and 71% are engaged in service sector. (CIA, URL)
The Brazilian minimum wage was adopted in 1940. It defines the floor for formal wage-
earning work, in both the private as well as the public sectors. It also serves as a benchmark
for social security benefits.

Although the minimum wage has been in effect for almost 70 years in this country, its real
value over time has depended on the economic context and on the political will of the
different governments. During economic crises and in periods of high inflation in the 80s and
90s, the amount of the minimum wage dropped significantly, contributing to the rise in
poverty and inequality throughout the country. (Berg, 2009) In 2006, the government
coordinated negotiations with representatives of unions, employer organizations, and

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organizations of retirees and pensioners. The outcome was an annual adjustment policy based
on the rate of inflation and growth of GDP per capita, in effect until 2011. Under the policy,
the nominal 12% adjustment (6% in real terms) scheduled for April 2009 was brought
forward to February 2009, as a response to the crisis. (ibid.)

Wage inequality has fallen in all sectors and most rapidly for construction and services
sectors which along with employment generation also increased the share of registered wage
earners in the years since 2000. In these sectors, average wages are not much above minimum
wages, so a rise in the minimum tends to reduce sector-wise wage inequality. (Panknin &
Randolph, 2015)

Now let’s see the minimum wage concept in one of the developed countries i.e. United States
of America. Out of the huge population, 158.6million people come under the labour-force.
Out of the total labour force, 37.3% of the labour-force is engaged in managerial,
professional and technical sector. 24.2% labour force is engaged in sales and office where as
20.3% people are engaged in manufacturing, extraction, transportation and crafts. 0.7%
labour force is engaged in farming, forestry and fishing. The rest of the labour-force i.e. about
17.6% is engaged with other services. (CIA, URL)

The Minimum wages started in USA on 26 June, 1940 where it was established only in two
states i.e. Puerto Rico and the Virgin Islands for few industries. There has been many
amendments in the process of including various industries in 1947 and 1949. In the
amendment of 1961, it expanded its coverage to retail trade sector with the increase in
minimum wage from $1 to $1.15 per hour which increase to $1.25 per hour. After various
amendments, in 2007 amendments, it increased the minimum wage to $5.85 per hour
effective since 24th July 2007 which increased to $7.25 per hour in 2009. (DoL, URL)

In 29 states and the District of Columbia have minimum wages above the federal minimum
wage. In 2015 alone, 20 states raised their minimum wages, lifting the pay of over 3.1 million
workers.

The District of Columbia’s minimum wage is the highest, at US$ 10.50 per hour. Moreover,
10 states have their minimum wage indexed annually to adjust for inflation, and another five
states and the District of Columbia plan to follow suit.7 Cities and counties, too, have begun
to set their own minimum wage floors through local ordinances and ballot initiatives.
(Panknin & Randolph, 2015)

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Rapid economic growth and large gains in productivity have led to rising real wages in some
Asian developing countries that have become major exporters. Although this trend was
interrupted by the financial crisis of 1997-98, there are signs that the trend is resuming.

1.7 Small Sample Study

The research is based on two villages in which the primary data has been collected. Both the
villages are situated in Cuttack District of Odisha and one industry in the Kalinga Nagar
Industrial belt of Jajpur Distric in Odisha. The research involved purposive sampling by using
semi-structured questionnaire. Purposive sampling relies on the judgement of the researcher
when it comes to selecting the units that are to be studied. Purposive sampling aims at
focusing on specific characteristics of a population by using specific research question. It is
not about selecting any random sample and making generalization about some facts. The
research aims at qualitative and quantitative analysis of wage rates in rural India.

Occupational structure of the village and the population of village were the major criteria
before selecting the fields of data collection for this study. One village is situated at the bank
of Mahanadi River in which the primary occupation of many people is agriculture. At the
same place the other field village is famous for its handloom products.

In the first field i.e. Kanpur village, the household were selected randomly from various small
colonies in the village as the village has a small colonies based on castes. After the
identification of the colonies, the households were chosen as per the availability of people.
Further in the second village i.e. Maniabandha, the major targeted sample were the handloom
weavers as they make a major share of the population in the village are engaged in Handloom
weaving. Hence, the focus in the second village was to understand the livelihood of weavers
who come under the non-agricultural occupation category. Further the Industrial area of
Jindal Stainless Ltd. was chosen in order to understand the informal labour in a large scale
industry.

While data collection, different categories of people were kept in mind in terms of people
from different caste, gender, age group and as said before occupation. The sample included
the responses of households of various caste groups such as Brahmin, Chasa, Gauda, Keuta,
Tanti etc. It also included people from the age group of 20 to 60 i.e. students to old age
people in order to understand their livelihood and living condition in the village. Further the
sample majorly focused on the households with land holding between 0 acre to 3 acres.

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1.8 Cross Sectoral Analysis

Indicators Agricultural Rural Labour Non-Agricultural Rural Labour Industrial Informal Labour

Wages The wages vary from Rs. 150 to Rs. Depending on the type of occupation they The industrial labour receives the wage
200 for women and it varies from Rs. do, the average wage lies between Rs. 150 on the basis of the minimum wages of
200 to Rs. 350 for men for a day’s to Rs. 350. the state. These labours are employed
work i.e. 8 hrs a day. on a daily wage basis but as they work
in a formal set up of work, they earn as
In some cases, tenancy is also
per the minimum wages determined by
observed in which case the production
the state.
from the field is divided in half
between the farm owner and the
tenant.

Determinatio The wages of the Rural Agricultural The most important determinant of wages The wages are determined mainly by
n of Wages Labour depends on the type of in this sector is the occupation of the the minimum wages determined by the
agricultural labour they provide i.e. labour. As per the government of India’s state which gets revised in every two
sowing, ploughing, weeding etc. The guidelines, it is a set of various years (in the sample state). Further it
wages vary on a gender basis. And occupations. In the sample area, the also depends on the wage rates
the wages of female labour is less than occupations found are weaving and prevailing in the nearby industries in
what the male labour receives. Further construction labour. Few of them were order to keep the constancy among the

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Indicators Agricultural Rural Labour Non-Agricultural Rural Labour Industrial Informal Labour

it also depends on the seasonality of drivers. The weavers earned not a daily labour. Further, they receive all kind of
work and the crop for which the basis, but they earn on per piece basis i.e. materials which they need during the
labour has been provided. In the Rs. 700 to Rs. 900 depending on the design work. But they don’t receive any other
sample area it was mostly paddy as of the saree. The construction labour find benefit such as housing etc.
many of the farmers depend on rain work for about 10-15 days a month with
for their crop and hence the wages the wage rate as per the minimum wage
remain the same all along the year. rate or the MG-NREGA prices. The
drivers earned about Rs. 5000 per month.

Living The living condition is almost the same across sector in the sample. They all live in Kacha houses. Few of them were able to
Condition make Semi-pucca house with the help of IAY. But the living condition of people and their financial condition are not that
stable. Many of them struggle to have enough food for the family all day.

Level of People who are involved as Among the non-agricultural labour, the People who are engaged in industry at
Education agricultural labour, either they are weavers were mostly either illiterate or various level, have different levels of
illiterate or they have studied to a have studied till primary education because educational qualifications. People who
primary level of education. But they they had to learn the art of weaving. work as support staff engaged in
have made efforts to make their Further the people who are engaged in cleaning and sweeping are educated
children educated till higher construction labour have studied till at either till primary level or till the higher
secondary. But after that they had to least higher secondary. In case of lack of secondary level. Further people who are

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Indicators Agricultural Rural Labour Non-Agricultural Rural Labour Industrial Informal Labour

engage in any type of occupation in opportunities, they also opt agriculture as engaged in gardening and such
order to support the survival of the their secondary occupation. occupations are mostly educated till the
family. primary level. Further those who are
employed as technicians on a temporary
basis are educated till either higher
secondary level or higher education
level.

Type of They mostly work as daily wage A similar scenario also exists for the non- The labours are employed under a
Contract labour. But in case of tenancy, the agricultural labour in the sample area. contractor in this sort of employment.
production is distributed in half Most of them are employed on a daily The contractor deploys 70% of the work
between the land owner and the wage basis except the weavers. They try to force under him and the rest remain as a
tenant. There are no other sort of receive work orders from various retailors back-up. The contractor receives from
contract which exist in this sector in so that they can earn something in return of the industry and pays to the labour with
the sample area their labour. a proper record maintenance to maintain
transparency in payment. Further the
labour don’t have any such contract
signed.

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1.9 Conclusion

A large percentage of workers (about 92 per cent) are engaged in informal employment and a
large majority of them have low earnings with limited or no social protection. This is true for
a substantial proportion of workers in the organized sector as well. Over half the workers are
self-employed, largely with a poor asset-base, and around 30 per cent are casual labourers
seeking employment on a daily basis. About 18 per cent of those employed are regular
workers, and amongst them less than 8 per cent have regular, full-time employment with
social protection. (IHD, 2014)

It is true that the wages have increased with the due course of time keeping in mind the
consumer price index but the ratio of increase of wages is not the same for workers in
organised sector and workers in unorganised sector. The most important challenge kin
employment sector today is the large number of “working poor‟ and under-employed
engaged in low-productivity activities in the unorganized sectors. By the current poverty line
(equivalent to about US$ 1.25 per day in terms of purchasing power parity or PPP), one
fourth of all workers-about 118 million- are poor. They are largely either casual workers or
own-account workers. If the current poverty line is raised to about US$ 2 per day (in terms of
PPP), the percentage of working poor will increase to nearly 58 per cent and the number of
such workers would be around 276 million. (IHD, 2014)

If we see the condition in the villages, then it is evident that people are not aware about such
act i.e. Minimum Wages Act or Equal Remuneration Act etc. Even the employers that may be
a land owner or any contractor who employee the workers in the villages are unaware of such
schemes. They decide the wage rates as per the relative wage rates which persist in the
nearby villages and nearby districts. As the village has a surplus of labour who work as daily
wage labour and as there are less number of big land owners, the employers have the upper
hand while hiring people as they can bargain over wage rates, and hence employ labour in
cheaper rates. This also further aggravates the situation of wage differentials on the basis of
gender.

As discussed in earlier sections, there are a lot of technical calculations and factors which are
taken into consideration while deciding the minimum wage for various employments and
various skill set. But they are not the only factors which are used while deciding the wages of
a person in a particular employment. Even in informal sector, education and experience apart

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from gender play a very important role while deciding the wage rates. It can be termed as the
valuation of the skill or the labour.

Education has a highly significant relationship with wages for both the sexes i.e. wages
increase with increasing educational level. Despite, the central and state government has done
huge investments in order to increase the level of literacy and education at primary level; still
it continues to be of poor quality. This further continues at other educational levels which
creates the skill set of a person. The basic idea of minimum wage is about establishing wage
rates as per the skill set of a person and at the same time skill set is decided as per the
educational level of a person. This is the reason for the handloom weavers who receive a very
meagre wage as majority of them don’t have any technical education about weaving which
ultimately results in very poor living condition of their families. With-out education, at many
places such as in case of weavers, the experience of last 20-30 years does not improve their
wages. They face also another problem in terms of mode of payment which is per piece rate
which is not covered in the Minimum Wages Act of 1948.

“Some of the studies also indicate that the flexibility in the labour market with
reforms in other sectors of the economy is expected to raise employment and also the
real wage in the long run, if not in the short run.” (Fallon & Lucas, 1991)

Hence if we talk about labour reform or economic reform as a method to tackle the problem,
then there can be many perspectives attached to it. If we talk about including wage flexibility,
then it can be said that the raising employment substantially through wage reduction does not
look promising in a large majority of the developing countries. (Mitra & Sharma, 2015)
Further Arup Mitra and Chandan Sharma also say that

“Labour demand is expected to vary inversely with wages. On the other hand,
given the value added and wages per worker, any rise in the number of man days
per worker may actually reduce the number of workers.” (Ibid.)

As the empirical results show, reduction of wage rates cannot bring in miraculous increase in
employment. Besides labour market flexibility in terms of the changes in the mode of
employment i.e. from regular wage employment to contractual, casual and piece rate
employment has serious implications in terms of the social costs and welfare losses. (Ibid.)

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India has witnessed an impressive GDP growth rate of over 6 per cent since the 1980s.
Growth has been particularly rapid since the post reform period of the 1990s. This high
growth has contributed to a sustained increase in per capita income and a decline in absolute
poverty, as well as modest improvement in standards of living. It has also brought important
changes in employment conditions in the country. The structure of the labour market, patterns
of employment growth, and labour-market institutions play an important role in shaping
development patterns and outcomes. However, there is a lack of analytical documentation on
these issues.

Given the vast stretch of underemployment and poverty, developing countries cannot afford
to have a rapid growth that does not benefit labour in a significant way. A medium- to long-
term employment strategy should be envisaged to deal with the challenges highlighted above.
As education has a very significant relation with the process of determination of wages, one
policy implication which is necessary is to focus on all levels of education in order to train
the labour force required skills in order to earn as per their choices.

As wages have increased with the due course of time, but it has not increased substantially to
help the daily wage labour to come out of poverty. Minimum wage along with other
employment related schemes might help the labour force to increase their standard of living
with respect to earlier socio-economic well-being of the household. But to come out of
poverty in a sustainable manner it would a lot more than just schemes. It would require a
continuous and proper implementation of the schemes from both sides of government and
people.

As mentioned, Government of India has established a number of policies for better

employment and earning of the labour force. But, some way or the other policies fail to reach
its target population. Hence, there must be effective implementation of the equal pay for
equal work principle and on revising the minimum wages. Some protection and social
security should also be given to labours especially in agricultural sector and other informal
sector employments.

Another policy suggestion can be made pertaining to agricultural sector, as in India, the
economy and labour force is predominated by agricultural sector. Indian economy is a
primary sector based economy as far as labour employment is concerned. (Chakraborty &
Mukherjee, 2014) Hence any policy whose primary objective would be to improve the

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productivity of agriculture could lead to a shift of the work force to the non-farm sectors with
a lesser gender based wage difference.

It should ensure that the organized sector, particularly manufacturing, grows much more
rapidly than in the past and leads to a process of economy-wide productivity growth, along
with employment expansion and rising wages. Even in the organized sector, informal
employment should not grow at the cost of formal jobs. Regulatory interventions in informal
enterprises should ensure that a minimum quality of employment is maintained and basic
rights of workers are respected. The recent growth in the productivity and wages of workers
in the unorganized sector is an important and welcome development. Although small, it has
important implications for employment and development policies of the country. The need is
to sustain and accelerate this process.

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