IMPACT OF MINIMUM WAGE POLICIES ON POVERTY AND EMPLOYMENT:

AN URGENT NEED FOR STREAMLINED LEGISLATION

ABSTRACT
This research paper delves into the impact of minimum wage policies on the organized and
unorganized employment sectors. It entails a comprehensive analysis of the Minimum
Wages Act of 1948, its limitations, and its problems with the limitations of the act. We have
summarized three literature reviews and their findings. This has been used in the critical
analysis to determine a need for more streamlined and uniform legislation. There is a need to
align the minimum wage with the standard of living in different states. We have addressed
critical challenges in the existing statutory framework. It discusses how improving
compliance and ensuring fair wages can alleviate poverty and improve economic growth.
Workers need to be educated and empowered to advocate their rights.
Keywords: labour, minimum wages, poverty, employment, legislation

INTRODUCTION
The International Labour Organisation has defined minimum wage as “the minimum amount
of remuneration that an employer is required to pay wage earners for the work performed
during a given period, which cannot be reduced by collective agreement or an individual
contract”. The word labour is present in the Concurrent list of the ‘Constitution’, which
implies that both the state and the central government can make laws on the same. The State
government mainly regulates the informal sector. The rules made by the central government
directly impact the structure and amount of remuneration in the unorganised sector. All
central government-enacted labour rules impact the structure and level of salaries in the
unorganised sector, either directly or indirectly.

NEED FOR THE STUDY

Examining how minimum wage laws impact employment and poverty in India is imperative.
First of all, a large portion of the labour force in India is employed in low-wage businesses.
The country is vast and diverse. To assess potential impacts on the standard of living for a
sizable portion of the population, it is critical to understand how changes in minimum wages
affect employment levels. One top priority is reducing poverty, and minimum wage
regulations are often considered a way to address economic disparity. Analysing the
effectiveness of these programs in reducing poverty rates can shed insight into how they
improve the financial stability of the more vulnerable and marginalized segments of society.
Given India's rapid economic expansion and ongoing structural changes, it is critical to
recognize the connections between minimum wages, employment, and poverty. Knowledge
gained through experience helps create labour markets that support widespread pro-poor and
pro-social development growth. Furthermore, minimum wage laws are essential for meeting
young people's employment needs and guaranteeing fair and sufficient wages in India due to
the country's demographic dividend and sizable youth workforce. It demonstrates the
capacity to analyse how minimum wage regulations for underage work affect young people's
employment prospects and general quality of life.

SCOPE AND LIMITATIONS

SCOPE
The study on how minimum wage rules affect employment and poverty in India includes
many facets of the country's socio-economic environment—studying the impact of minimum
wage legislation on employment and poverty in several states and regions of India. It
explores the diverse economic situations and variations in the cost of living and will offer
valuable insights into the regional effects of these initiatives. We are evaluating the amount
and quality of jobs produced by minimum wage rules.
This involves assessing alterations in working situations, employment stability, and chances
for skill advancement among the impacted workers and exploring the flexibility of minimum
wage legislation in response to developing economic conditions and technological progress.
The study can spotlight the demand for adaptable policy frameworks that manage altering
issues in the labour market.
This study extends beyond looking at the immediate implications on employment and
poverty. It thoroughly examines regional, sectoral, and demographic disparities to lead
targeted and efficient policy actions for long-lasting socio-economic growth in India.

LIMITATIONS
1. Statistics Availability and Reliability: There can be gaps in the data about minimum
wages, employment, and poverty, especially in the unorganized sector. Outdated or
inadequate data can compromise the study's thoroughness and precision, skewing the results.
2. Dynamic Economic Conditions: The study might not entirely reflect the current
circumstances, which are subject to frequent change, given the dynamic nature of the Indian
economy. External factors such as global economic trends, political shifts, and public health
emergencies may affect the study's findings, even if they do not need to be adequately
considered.
3. Informal Sector Challenges: The informal sector, which forms a significant component
of India's employment, may need more time to analyse due to its unstructured element.
Limited access to data and the absence of formal employment contracts can make it difficult
to accurately assess the impact of minimum wages in this company.
4. Time Lag in Impact: The consequences of minimum wage legislation on employment
and poverty may take time to be apparent. There could be a time lag between the policy
implementation and the observable effects, making it harder to draw timely judgments
regarding the performance of the initiatives.
5. Policy Implementation Challenges: The study's capacity to generate consistent
conclusions may be impeded by variances in the application and enforcement of minimum
wage legislation among regions and industries. The practical applicability of these
regulations may fluctuate depending on variances in compliance rates and enforcement
methods.

OBJECTIVE OF THE STUDY

1. Determine How Minimum Wage and Employment Levels Are Associated:
Perform time-series analysis to evaluate changes in the minimum wage in conjunction with
related changes in employment rates. Examine the reactions of various industries to changes
in the minimum wage, including manufacturing, services, and agriculture. Consider
econometric models to uncover potential confounding variables influencing employment
trends and causal links.
2. Analyse the Effect of Wage Disparities:
Employ statistical tools like percentile analysis and Lorenz curves to see and analyse
changes in the pay distribution brought about by minimum wage modifications. Think about
whether some income groups gain disproportionately from these changes or whether they
result in a more equitable allocation of income.
3. Assess the Impact on the Unorganised Sector:
Apply a mixed-methods strategy, integrating case studies and interview-based qualitative
insights with quantitative data analysis. Examine how minimum wage legislation affects the
dynamics of the informal sector, such as shifts in employment trends, income disparities, and
job security. Examine whether informal labour can be formalized and integrated into
regulated employment arrangements.
4. Examine Gender and Social Equity:
- Use intersectional analysis to learn how minimum wage regulations influence various
demographic groups.
- Examine pay inequities based on gender and assess if raising the minimum wage helps to
lessen these injustices.
- Examine if implementing a minimum wage law would help to increase social mobility and
reduce overall socioeconomic inequality.

5. Think About Long-Term Economic Impact:

-Employ dynamic modelling tools and longitudinal data to evaluate the long-term economic
consequences of minimum wage regulations.
-Consider the consequences of minimum wage rises on investment, productivity, and total
economic growth.
-Examine feasible compromises and cooperation between immediate benefits and long-term
viability.
6. Make Policy Recommendations:
Condense study results into actionable policy ideas. Consider India's unique social and
economic conditions and give evidence-based approaches to maximize the effects of
minimum wage legislation. Stress the significance of continuing monitoring, stakeholder
participation, and flexible policy frameworks to accommodate new concerns and
possibilities.

RESEARCH METHODOLOGY
We employed a rigorous empirical research technique to analyse the intricate relationship
between minimum wage regulations and how they affect employment and poverty in India.
We applied several quantitative methodologies, such as time-series analysis, statistical
testing, econometric modelling, and systematic data collecting and analysis, to extract
noteworthy conclusions. We looked at big datasets containing employment rates, wage
distributions, and poverty indices for different periods. We tried to discover objective
patterns and trends by applying an empirical lens, offering a solid basis for developing
evidence-supported judgments. This methodological decision underlines our focus on
developing trustworthy and data-driven results, guaranteeing the legitimacy and
dependability of our research findings in advancing the more significant discourse on the
efficacy of minimum wage legislation in the Indian context.

LITERATURE REVIEW
1. A study titled “A review of the consequences of the Indian minimum wage on
Indian wage and employment”, written by academician Paul Wolfson and
facilitated by the International Labour Organization, conducted empirical
research to gauge the effect of such wage on the said factors. They referred to
different case studies and employed Kernel Density Plots (KDP) and regression
analysis methods. Given the complexities of employment and minimum wage in
a country like India, wherein both factors differ based on industries and the
nature of jobs, the researchers have assigned a suitable minimum age to each
worker according to their work. Value zero on the plot indicates compliance with
the minimum wage, negative indicates income below the minimum wage, and
positive indicates income above the minimum wage. The KDP of India and
Brazil for 2004 and 2009 is shown below. In 2004, there was a peak in
compliance with the minimum wage. However, it is not as sharp as Brazil,
indicating limited compliance. It can be inferred that the minimum wage policy
has served as a benchmark in India. In 2009, the peak shifted towards the left,
indicating a decrease in compliance with the minimum wage. However, it has
continued to serve as a benchmark rather than strict adherence. Apart from
Himachal Pradesh and Assam, whose shift was towards the right, Kerela and
Odisha just complied. Rajasthan had a little shift towards the right. Regression
analysis is the method in which independent and dependent variables are used.
After that, the effect of change in independent variable on dependent variable is
 determined. It has been stated that this technique yields objective results. In this
case, the wage is a dependent variable, as well as factors like gender, age, and
level of education. This research shows that wages for workers change when the
minimum wage changes. Such changes are not random. It was deduced that for
every 1% increase in minimum wage, wages increase in elasticities by around
0.47% to 0.61% on average. Bringing uniformity in laws and ensuring
implementation by the stakeholders can decrease the discrepancies.
The study also delves into the impact of minimum wage on employment.
Research shows that it has led to a significant decrease in child labour. If the
family's adults are guaranteed a minimum wage for their work, it is unlikely that
they will employ their children as well. Research done by Menon and Rodgers
(2017,2018) using the National Sample Survey concluded that the effect on rural
men and women was more significant since it gave them the security of a certain
minimum amount as payment. However, the impact on the urban sector was not
that significant. A higher minimum wage increased the probability of child labour
for rural boys while significantly decreasing the chances of domestic
employment for girls. The chances of domestic employment for both boys and
girls are increased in the urban sector. The effects were not that significant in
intensity.

2. This study, "Redesigning a Minimum Wage System in India for Inclusive

Growth”, discusses India's complex wage policy and suggests a uniform system.
In the past years, when the global economy has slowed, India’s economic growth
has been carried by the private sector. Since 93% of the workers are employed in
the private sector, a streamlined wage policy can help improve income inequality,
reduce poverty and bridge the gender gaps. Currently, India has 1915 minimum
wages established for different jobs across states. Research findings conclude that
one in three workers is not covered under the minimum wage laws, making them
prone to unfair practices adopted by the employer. Some advocates suggest fixing
a ceiling or cap by dividing workers into skill and geographical location
categories. Such a system will be simple and coherent, leveraging technology for
implementation. The proposed system will not affect employment levels either.
3. This study, "Extending the Coverage of Minimum Wages in India”, explores the
prospect of extending the minimum wage policy to all wage earners. This would
 imply that all employers will need to follow the benchmark figure set by the
government. This study concluded that if the minimum wage is extended at the
existing levels, it will benefit around 70-75 million casual underpaid workers by
solving problems like poverty and inequality, thereby promoting social justice.
The study uses methods like the gini coefficient and bivariate probit model to
gauge the impacts of the same on various factors. The introduction of a national
minimum wage policy can significantly reduce poverty rates. It can cause a 7%
to 10% decrease in the poverty of low-wage earners and 3-6% for state-level
wage earners. The article highlights the importance of enforcement, which is
lacking in developing and developed countries. The advocates have suggested a
plan for a coherent enforcement strategy that includes dissemination of
information, robust labour inspections and penalties for non-compliance. It
suggests the government acting as an ‘employer of last resort’ to ensure proper
adherence to the statutes.

CRITICAL ANALYSIS AND FINDINGS

When India enacted the Minimum Wage Act in 1948, it was among the first countries to
protect regular and casual workers. The central and state governments set the minimum
wage rates for various scheduled employments notified under the act based on skill levels,
geographical location and occupation. The Indian Labour Conference of 1957 suggested
fixing the benchmark according to household needs. In another conference held in 1988, it
was suggested that it be fixed according to cost needs.
The Minimum Wages Act, 1948: The minimum wage bill was introduced in 1946, and the act
was passed in 1948. The enactment is instrumental in defining India’s Wage Policy. The
government established the Central Advisory Council to determine fair and equitable wages
for labour since industrial relations were strained. Within this framework, the Fair Wages
Committee was formed to outline principles for fair pay. The Supreme Court ruling in 1992
further stated the importance of considering factors like children's education and medical
requirements when setting minimum wages. Despite debates surrounding a national
minimum wage due to disparities in economic development and cost of living, efforts have
been made to establish a National Floor Level Minimum Wage (NFLMW). Setting
minimum wages in India results in different levels of economic development across different
states and disparities prima facie in the relationship between per capita net state domestic
product (NSDP) and minimum wage rates. The Minimum Wages Act of 1948 takes a non-
discriminatory stand. However, gender disparities still exist, mainly in jobs involving
women. The primary reasons behind non-compliance with minimum wage laws include the
proliferation of wage rates and job categories, which affects industries' migration and
enforcement challenges. Although the National Floor Level Minimum Wage serves as a
benchmark, the compliance levels vary in different regions of the country. Minimum wage
policies in India present more of a ‘lighthouse effect’ enhancing the bargaining power to
push wages in the low-paid and informal sectors. It serves as a benchmark to set wages. An
increase in the minimum wage has decreased wage inequality among casual workers but not
among regular workers. Evidence shows a decrease in wage inequality at the lower levels or
the floor level due to the lighthouse effect. The impact of minimum wage policies on
developing nations and economies has been minimal. However, studies conducted in India
have mixed results, some resulting in positive effects and some negative. Most of the studies
show positive effect in employment at rural levels.1

Their report delineated three wage levels: a minimum wage, a fair wage, and a living wage.
The committee emphasized that the minimum wage should cover necessities and support
worker efficiency by accounting for education, healthcare, and other amenities. This
recommendation underscored a holistic approach to wage regulation, shaping India's wage
policy trajectory. The act primarily aims to ensure a bare stipend for workers and restrict
labour exploitation. The government must review the minimum wages for scheduled
employment every five years. Employers cannot delay payments on grounds of shortage of
funds or otherwise once the minimum wages have been established. Minimum wages consist
of base pay and variable dearness allowance, both indexed biannually to the Consumer Price
Index (CPI). There are four types of minimum wage rates: time rate, piece rate, guaranteed
time rate, and overtime rate, and they can vary based on employment type, tasks performed,
age groups, locations, and gender. Overtime pay is also provided for employees working
beyond stipulated hours. The determination of minimum wages takes into account various
factors like socioeconomic conditions, cost of living, and regional characteristics. While the
Centre has established provisions for all scheduled employments in its domain, 22 states and
Union Territories have implemented variable dearness allowance.
The effects of implementing the Act can be seen mainly on workers in the organized sector
compared to the unorganized sector. Workers in the unorganized sector are mainly employed
by small and local businesses and with diverse work and job types. These workers do not
have legal protection for the aforementioned reasons. Since they don’t have job security,
such workers refrain from filing legal complaints for payments below minimum wage.
Failures in administration, inconsistent policy framework, and exemptions granted to
industries are some of the reasons behind poor implementation. A cohesive enforcement
strategy must be set in place incorporating information sharing, labour inspections, and
sanctions for violations. Increasing the involvement of NGOs and workers' organizations
could enhance the effectiveness of implementation efforts. Under the Code on Wages Act,
the government appoints inspectors to verify adherence to the law and impose penalties
based on the severity of violations. Research indicates that higher minimum wages are
associated with higher noncompliance rates, particularly among women, casual workers,
younger workers, rural residents, and unskilled workers. Noncompliance with minimum
wage regulations remains a significant issue in the Indian labour market, with some workers
experiencing rates as high as 90%.

The Code of Wages Act 2019 has proposed significant changes to the labour laws in India,
aiming to modernize and streamline regulations while ensuring greater accountability and
1
Implementation of Minimum Wages Act, 1948 in India, 3.1 JCLJ (2022) 1887
transparency. The primary objective is to establish universal provisions for minimum wage
and assure payment across all sectors is timebound, eliminating wage discrepancies and
ensuring the "Right to Sustenance" for every worker. Under the Code, the Central
Government is authorized to set floor wages, considering workers' living standards. These
floor wages serve as a baseline below which the state governments cannot set minimum
wages. Additionally, the government has the authority to establish different floor wages for
various geographical areas, reflecting regional cost of living variations.
However, concerns have been raised regarding the potential flight of capital from regions
with higher wages to those with lower wages due to the difference in the floor wage system.
Despite these challenges, the Code represents a crucial step towards ensuring fair and
equitable wages for all workers in India.

Under Article 43 of the Indian Constitution, the state must mandatorily ensure that all
agricultural, industrial or otherwise workers are secured with minimum wages to get by and
live a leisurely life full of social and cultural opportunities. Also, the case Y.A. Mamarde v.
Authority2 upheld that labourers must live a life of dignity in lieu of contributing to the
healthy progress of the nation. In this case, the court held the primary objective behind the
Minimum Wages Act: to protect the lower-class uneducated people residing in remote areas
of the country. This population is highly vulnerable to exploitation by the capitalist class.
Impact on poverty and employment
The role of minimum wages in poverty reduction is debatable, especially in developing
countries like India. Arguments put forth by people contending for the positive impact
suggest alternative theories have potential benefits, especially for unskilled labour.
Arguments by people who think it may not make a difference contend that minimum wages
cannot alleviate poverty due to limited coverage and an informal employment system.
General equilibrium analysis models indicate that an increase in formal sector wages can
positively impact both formal and informal sectors by increasing wages and employment in
the latter. Mixed outcomes are found when data on minimum wages in rural areas are
compared to statistics on casual labour wages. Programs such as MNREGA pay less than the
agricultural minimum wage in some states but more than in others. Even with programs like
MNREGA that guarantee work, several states have wages below the poverty level, a sign of
ongoing difficulties in providing fair recompense for labour. In certain areas, low wage
levels are caused by illiteracy, ignorance, weak bargaining power, and labour surplus
situations; in other states, low wage levels may be maintained by the influx of migrant
workers. Kerala is an outlier, maybe because of its labour scarcity, where pay for some types
of employment is higher than the minimum wage in agriculture. One way to think about
minimum wages is that they set a standard for what's considered a fair wage. So, when it
goes up, employers might feel pressure to raise the wages of workers already earning a bit
more than the minimum. This ripple effect pushes wages for a broader range of workers. So,
in simple terms, the minimum wage in India isn't just lifting those at the very bottom of the
pay scale. It's also nudging up the wages of people earning a bit more but still not at the top.

2
Y.A. Mamarde v. Authority under the Minimum Wages Act, (1972) 2 SCC 108
Overall, implementing minimum wage laws is imperative to address poverty and improve
living standards, but there are challenges to ensuring adequate coverage and enforcement,
particularly in the informal sector. Moreover, there is a pressing need for higher minimum
wage rates and a fundamental shift in addressing this issue. The current minimum wage
system exacerbates poverty rather than alleviating it. Efforts to rectify this situation should
include strengthening enforcement mechanisms, simplifying the process for determining and
revising minimum wage rates, indexing rates to Consumer Price Index Numbers (CPI), and
increasing the involvement of workers' organizations in implementing the Minimum Wages
Act. The findings suggest that while minimum wage increases may affect child labour
patterns within households, the effects vary according to gender and the rural-urban divide.
Overall, the analysis highlights the complex dynamics of minimum wage regulations in
India, where compliance levels and the role of the minimum wage as a benchmark can vary
over time. Understanding these nuances is crucial for policymakers in designing effective
wage policies and ensuring fair compensation for workers.
The impact of a minimum wage policy on employment is debatable in economics. The
primary focus has been on the working hours and number of jobs. This raises the question of
balance between costs incurred and benefits gained. There is a plethora of studies, some
stating that an increase in the minimum wage leads to a decrease in the employment of low-
paid workers. Studies suggest mitigating factors such as changes in wage structures and
increased consumer spending. Empirical evidence in developed economies shows various
results, from minor positive impacts to insignificant employment effects. Nonetheless, meta-
analyses show that aggregate statistics frequently show negligible or undetectable overall
employment effects. On the other hand, other evaluations indicate that raising the minimum
wage would make it harder for less skilled workers to find jobs. The results of studies vary
similarly in emerging countries. Certain studies indicate possible detrimental effects,
especially with high minimum wage levels, while others reveal insignificant or even positive
effects on employment, especially in cases of moderate salary rises. Although there are
differences, a general tendency indicates that minimum wage laws generally have little
effect on employment, with large fluctuations depending on external factors like economic
conditions and salary levels.
Overall, empirical data indicates that minimum wage rules frequently have complex and
context-dependent effects on employment, even though their consequences are still
debatable. More investigation and careful analysis are required to fully comprehend the
intricate relationships between minimum wage laws and employment outcomes in a range of
economic contexts.

CONCLUSION & SUGGESTIONS

There is a dire need to set basic minimum wages in accordance with the income required to
have the necessities and minimum standards of living in each State and Union Territories.
This includes sectors like agriculture, household work, and stone crushing, where minimum
wage workers struggle to maintain a respectable standard of living. The penalties for non-
adherence must be increased. The government must take action and set a precedent for all
organisations. Workers must be educated about their rights, and trade unions and labour
organisations must be encouraged to advocate for any problem they face. The State
government must ensure the bare subsistence of employees in the unorganized sector by
setting minimum wage rates based on moral and humanitarian considerations. The Code on
Wages Bill needs to be supported since it consolidates three acts namely the Minimum
Wages Act, 1948, the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965 and
the Equal Remuneration Act, 1976. The Central Government must ensure that the
differential minimum wage set by each state is not lower than the national floor minimum
wage. The legislation should cover minimum wage in both organized and unorganized
sectors. A mechanism for adjusting minimum wages regularly, similar to those in other
countries like Brazil, should be implemented. This would enhance transparency and
dissemination of information. Incorporation of technology will simply the process such as
creation of national-level dashboard accessible to all states and workers which will improve
transparency and empower workers. The government should release a toll-free number to
report grievances related to non-payment of minimum wages. Prompt action must be taken
for the same and act as a deterrent to violations. These measures aim to streamline the
minimum wage system, ensure uniformity, improve transparency, and empower workers to
access their rightful wages.

BIBLIOGRAPHY

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http://www.jstor.org/stable/23018591
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