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WAGES

CONCEPTS OF WAGES

The immediate objective of industrial adjudication is to settle an industrial dispute by constituting

such a wage structure as would do justice to the interests of both labour and capital, establishing
harmony between them and leading to their genuine and whole-hearted cooperation in the task of
production. In achieving this objective, the industrial adjudication considers several principles
such as,

i. The principle of comparable wages

ii. Productivity of the trade or industry
iii. Cost of living
iv. Ability of the industry to pay

The application of these and other relevant principles lead to the constitution of different categories
of wage structures such as living wage, fair wage and minimum wage. Industrial adjudication
has naturally to apply carefully the relevant principles of wage structure and decide every industrial
dispute so as to do justice to both labour and capital.

In order to maintain peace and goodwill in the industry on a fair and just basis, the principle that
must be followed is that “no industry has a right to exist unless it is able to pay its workmen at
least a bare minimum wage”. On the other hand, it must also be taken into consideration that if
any industry is burdened with a wage structure beyond its financial capacity, its very existence
may be in jeopardy and that ultimately leads to unemployment.

Sweatshop (Sweating): A factory or shop where labour is employed under unhealthy working
conditions, for long hours, at excessive high speed and for small wages. Employment of children
and women in such establishments was a common practice. E.g. - the early textile industry. The

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main objective behind the enactment of the Minimum Wages Act, 1948 has been prevention of
sweating and prohibiting payment of low wages in agricultural and unorganized sectors.

Objectives of Governmental Regulations of Wages:

i. Prevention of sweating, extra hard work, toil and poverty arising from unduly low wages.
ii. Fixation of just and fair wages for preventing industrial disputes.
iii. To control inflationary pressures.
iv. Raising purchasing power with a view to speeding up the pace of economic recovery.
v. Wage Regulation as a part of a national-income distribution policy.
vi. Wage policy as an instrument of planned economic development (five-year plans).

Fair Wages Committee (1948): The Government of India appointed a “Tripartite Committee on
Fair Wages” in November, 1948 to determine the principles on which wages should be based. It
consisted of representatives of employers, employees and Government. The Committee on Fair
Wages defined three types of wages namely:

a) Minimum Wage: (determined mainly for sweated industries).

b) Fair Wage: (considering the capacity of the industry to pay).
c) Living Wage: (providing for frugal comfort in addition).

MINIMUM WAGE

While evolving wage policy, the concept of ‘bare subsistence wage’ means the wage rate that has
to be paid irrespective of the capacity of the industry to pay and which is sufficient enough to cover
the bare physical needs of a worker and his family. An industry has no right to exist if it is unable
to pay its workmen at least a bare minimum wage.

A ‘minimum wage’ is that level of wage which, in addition to the ‘bare subsistence wage’, also
provide for preservation of the efficiency of worker. It is the lowest limit, below which wages
should not be allowed to sink, considering, the capacity of the industry to pay.

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According to the Fair Wages Committee, in order to enable the workman to preserve his efficiency,
minimum wage must also provide for ‘some measure of education, medical requirements and
amenities’.

The 15th session of the Indian Labour Conference (1957) evolved the concept of ‘need-based
minimum wage’ and accepted it as the guide for all wage-fixing authorities including minimum
wages committees under the Minimum Wages Act, 1948. The Need-based fixation of minimum
wage INCLUDES:
i. The requirements of three consumption units for one earner,
ii. Minimum food requirements of 2700 calories per average Indian adult,
iii. Clothing requirements of 72 yards of cloth per annum per family,
iv. Rent corresponding to the minimum area provided for under government’s industrial
housing scheme, and
v. Fuel, lighting and other miscellaneous items of expenditure to constitute 20 per cent of the
total minimum wages calculated.

NATIONAL FLOOR LEVEL MINIMUM WAGE: In order to have a uniform wage-structure and
to reduce disparities in minimum wages across the country, the Government of India has started
fixing ‘National Floor Level Minimum Wage’ which was mooted on the basis of the
recommendations of the National Commission on Rural Labour (NCRL) in 1991 but without
any statutory backing. The state governments are persuaded to ensure that in none of the scheduled
employments, the minimum wage fixed is less than the national floor level minimum. National
Floor Level Minimum Wage (NFLMW) is revised every two years on the basis of rise in
Consumer Price Index for Industrial Workers (CPI-IW). NFLMW has been increased to Rs.
176 per day from July 1, 2017. There are disparities still between the wages in different states as
the state governments have been empowered to independently fix minimum wages and because of
the non-statutory nature of National Floor Level Minimum Wage.

Later, in the year 1992, the Supreme Court delivered a judgment in the case of Reptakos Brett &
Co. Vs. its Workmen, pronouncing that the children’s education, medical requirement, minimum
recreation including festivals/ceremonies, provision for old age, marriage etc. should further

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constitute 25% of the minimum wage and be used as a guide in fixation of minimum wage. The
appropriate government also keeps this judicial pronouncement in view while fixing/revising the
minimum wages in addition to local conditions in that region.

The concept of minimum wages has been evolving from the beginning of twentieth century.
Following are some of the important developments:

a) The Royal Commission on Labour (1931): It recommended making investigations,

establishment of wage fixing machinery, and adoption of necessary legislation in respect
of the fixation of minimum rates of wages in small industries like bidi making, wool
cleaning, mica works, shellac manufactory and tanning. The Commission further suggested
setting up of a statutory wage board for fixing minimum wage in plantations of Assam.
b) Labour Inquiry Committees of the Provinces: Cawnpore Labour Inquiry Committee
(1937), Bombay Textile Labour Enquiry Committee (1937), Bihar Labour Enquiry
Committee (1938), C.P. and Berar Textile Labour Enquiry Committee (1946) and U.P.
Labour Enquiry Committee (1946), made thorough investigations in respect of wage levels
of workers engaged in different types of industries. These provincial committees also
favoured the fixation of minimum wages in different industries and employments.
c) Rege Committee (1944): Appointed by Government of India in 1944, the Labour
Investigation Committee known as Rege Committee also made investigations in respect of
wages and earnings in industrial employments and submitted a main report and 35 ad hoc
surveys. The reports and surveys revealed the existence of low levels of wages for almost
all categories of workers employed in different industries.
d) The International Labour Organization adopted conventions and recommendations
relating to minimum wage-fixing machinery. The Minimum Wage Fixing Machinery
Convention (No. 26), 1928 was ratified by India in 1955, after the enactment of the
Minimum Wages Act, 1948. The ILO, subsequently, adopted the Minimum Wage Fixing
Machinery Recommendation (No. 30),1928, the Minimum Wage Fixing Machinery
(Agriculture) Convention (No. 99),1951, the Minimum Wage Fixing Machinery

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Recommendation (No. 89),1951 and the Minimum Wage Fixing Machinery Convention
(No. 131),1970.

At the various sessions and meetings of the Indian Labour Conference and Standing Labour
Committee held between the years 1943-1945, the question of establishing statutory wage fixing
machinery in India was discussed. Afterwards, on April 11, 1946, a Minimum Wages Bill was
introduced in Parliament but the passage of the bill was considerably delayed by the constitutional
changes in India. However, the Bill was passed on 9 February 1948 and was named the Minimum
Wages Act, 1948 which came into force on 15th March, 1948.

The Statutory Minimum Wage is the wage determined according to the procedure described by
the relevant provisions of the Minimum Wages Act, 1948. Having regard to the Directive
Principles of State Policy, the State should strive to achieve the statutory minimum wage. Under
the Minimum Wages Act, 1948 the provision of statutory minimum wage is illustrated in a manner
that empowers the appropriate government to fix different minimum rates of wages for:

i. different scheduled employments:

ii. different classes of work in the same scheduled employment;
iii. adults, adolescents, children and apprentices;
iv. different localities; and
v. minimum rates of wages fixed by the hour, by the day or as prescribed.

FAIR WAGE

Generally, fair wage is the current rate of wages being paid in the enterprise which is, equal to the
prevailing rates of wages in the same trade or similar work in the same or neighbourhood localities,
or equal to the predominant rate for similar work throughout the country. Fair wage is fixed by
comparison with an accepted standard wage determined with reference to those industries where
labour is well organized and collective bargaining is well pronounced.

According to the Fair Wages Committee appointed in 1948, the fair wages should be above the
Minimum Wage and below the Living Wage. The objective is to improve relations between labour

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and management in a way that labour gets a fair deal by the owner on one hand, and to enable the
industry to maintain production with efficiency on the other hand.

The lower limit of the fair wage must be the bare subsistence level i.e., the minimum wage, and
the upper limit is equally set by the capacity of the industry to pay. The current rate of wages can
suitably be enhanced according to the capacity of an industry to pay and such fair wage would in
time progressively approach the living wage. Thus, “a fair wage is a step towards the progressive
realization of a living wage”. The factors putting limitations on fair wages include:

i. the capacity of the employer to pay;

ii. the prevailing rates of wages in the same or similar occupations in the same or neighbouring
localities;
iii. the level of the national income and its distribution;
iv. the place of the industry in the economy; and
v. the productivity of labour.

On the recommendations of the Fair Wages Committee, a bill was introduced in the Parliament in
August, 1950, known as Fair Wages Bill. It aimed at fixing fair wages for workers employed in
factories and mines. It contained various useful provisions also. It stands lapsed as of now.

The Committee also favoured the setting up of Wage Boards with regard to the machinery to be
adopted for the fixation of fair wages. It recommended that there should be a State Board for each
State, composed of independent members and representatives of employers and employees in
equal numbers. At the industry level, Regional Boards for wage regulation were recommended to
be set up. Finally, there should be a Central Appellate Board to which appeals may be referred
from the decisions of the Wage Boards.

Various proposals were undertaken at the Industries Conference in 1947 and a resolution known
as the Industrial Truce Resolution was passed. The payment of fair wages to labour is one of the
cardinal recommendations of the Industrial Truce Resolution.

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LIVING WAGE

Living Wage is at higher level than Fair Wage. According to the Committee on Fair Wages, the
Living Wage represented the highest level of the wage which should enable the worker to provide
for himself and his family not merely the basic essentials of food, clothing and shelter but a
measure of frugal comfort including education for children, protection against ill health,
requirements of essential social needs, and a measure of insurance against the more important
misfortunes including old age.

Living wage is fixed considering the general economic conditions of the country. The minimum
Wage-Fixing Machinery published by ILO has classified the estimates of the amount of a living
wage into three groups as follows:

1) the amount necessary for mere subsistence,

2) the amount necessary for health and decency, and
3) the amount necessary to provide a standard of comfort.

Article 43 of the Constitution of India has also adopted as one of the Directive Principles of State
Policy making a reference to living wage that:

“The State shall endeavor to secure, by suitable legislation or economic organization 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….”

Nominal Wages: It is the wage paid or received in monetary terms. It is the money that worker
gets and thus also called as money wage.

Real Wage: It is the amount of wage arrived after discounting the nominal wage by the living cost.
It represents purchasing power of money wage. The Real Wage can be defined as the amount of
goods and services that a worker purchase from his/her nominal wages.

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THEORIES OF WAGES

The concept of demand and supply of labour plays an important role in wage determination. The
differences in the assumptions regarding interaction of the forces of demand and supply yield
various theories of wages.

I. SUBSISTENCE THEORY

This theory of wages was propounded by David Ricardo. Ricardo states that, “The labourers are
paid to enable them to subsist and perpetuate the race without increase or diminution”. This
payment is also called as ‘subsistence wages. According to this theory, if the wages fall below the
subsistence level, the labour will become scarce as a result of death due to starvation, malnutrition,
disease, etc. and the wage rates will tend to go up. On the contrary, it is assumed that if the wages
are increased more than the subsistence level, the number of workers will increase as a result of
their marriage and procreation, bringing down the level of wages again to the subsistence level.
This theory is also called as “Iron Law of Wages” and is based upon two assumptions namely:

1) The law of diminishing returns applied to industry.

2) There is a rapid increase in population.

II. WAGE FUND THEORY

This theory of wages was propounded by Adam Smith and was further expounded by J.S. Mill.
According to this theory, wages to labourers are paid out of a separate wage fund. If the size of the
fund is larger, the wages would be high and if its size is small, wages would be low. Thus, the size
of fund determines the demand of labour and the wages that could be paid.

J. S. Mill said that wages mainly depend upon demand for and supply of labour. It can be
understood in terms of proportional relationships between population and capital available. If the
size of wage fund is fixed, wage rate can be increased only by reduction in the number of labourers.
Otherwise, wage rate can also be increased by increasing the size of wage fund. Mill holds that

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trade unions are irrelevant in raising the general wage rate which depends heavily on the size of
wage fund.

III. SURPLUS THEORY OF WAGES

This theory was developed by Karl Marx. Karl Marx advocated in favour of labour. His theory is
based on basic assumption that like other articles, labour is also an article or commodity that can
be purchased in exchange of a price that is wages. While the labour is paid that price at just the
subsistence level and not in proportion to time spent by labour in producing items, the surplus,
thus created, goes to the owner and is utilized for paying other expenses.

IV. RESIDUAL CLAIMANT THEORY

This theory was propounded by American Economist Francis A. Walker. According to him, there
are four factors of production namely land, labour, capital and organisation. He held that the labour
is paid what is left after making payments to other three factors of production viz. land, capital and
organisation. In other words, labour is ‘residual claimant’ whose wages are equal to what remains
after payment of rent, interests and profits.

This theory tries to prove that, if the productivity of the workers increases the production will rise
and as a result, there will be increase in the residual means to be distributed as wages. It also
recognizes that the workers have a stake in the national income of the country.

V. MARGINAL PRODUCTIVITY THEORY

This theory was propounded by Wick Steed and Clark. Marginal productivity means the value
added by an additional or marginal labour. Workers are paid only up to the point to which they are
economically productive. Thus, an employer will continue hiring only as long as the additional or
marginal worker contributes more to the total value than the cost in wages paid to him. Thus, the
employer’s share in profits increases as he doesn’t have to pay to non-marginal workers anymore.

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VI. BARGAINING THEORY OF WAGES

This theory was propounded by John Davidson. According to this theory, fixation of wages
depends upon the relative bargaining power of workers or trade unions, and of employers. When
a trade union is involved, monetary benefits, incentives, job differentials, etc. tend to be determined
by the relative strength of the organization and the trade union.

VII. AGENCY THEORY

The agency theory focuses on the divergent interest and goal of the organization. The employer
and the employees are considered as two stakeholders of a business unit, the former assuming the
role of principle and the latter the role of agent. The remuneration that is paid to the employee is
called the Agency cost.

WAGE DIFFERENTIALS

Wage differentials mean differences or disparities in wages. Wages differ in different

employments or occupations, industries, and localities, and between persons in the same
employment or grade. One therefore comes across such terms such as occupational wage
differentials, inter-industry, inter-firm, inter-area or geographical differentials and inter-personal
differentials. Interpersonal wage differentials are determined by the method of Job Evaluation.

Wage Surveys: In determining the wages for a specific job it is very necessary to work as to what
wages are being given for the same job in other enterprises. Wage and salary differentials are often
fixed on the basis of Wage Surveys. The steps involved in wages surveys are:
i. To select key jobs and their sample is created, the duties of which are clearly defined,
reasonably stable and representative of all levels of jobs.
ii. A sample of firms in the labour market area is chosen.
iii. The final task is to obtain appropriate wage information, taking care to ensure that the job
comparisons being made are valid.

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Wage differentials may be classified as follows:

1) OCCUPATIONAL DIFFERENTIALS: The reasons for occupational wage differentials

can be varying requirements of skill, knowledge, demand-supply situation, degree of
responsibilities, etc. In countries adopting a course of planned economic development, skill
differentials play an important role in manpower and employment programmes, for thy
considerably help in bringing about an adequate supply of labour with skills corresponding
to the requirements of product plans.

2) INTER-FIRM DIFFERENTIALS: Inter-firm differentials reflect the relative wage

levels of workers in different plants in the same area and occupation. Differences in
technological advancement, managerial efficiency, financial capability, age and size of
them, relative advantages and disadvantages of supply of raw materials, power and
availability of transport facilities- those are also accounted for considerable disparities in
inter-firm wage rates. Lack of co-ordination among adjudication authorities, too, is
responsible for such anomalies.

3) INTER-INDUSTRY DIFFERENTIALS: These differentials arise when workers in the

same occupation and the same area but in different industries are paid different wages.
Inter-industry differentials reflect skill differentials. The industries paying higher wages
have mostly been industries with a large number of skilled workers, while those paying
less have been industries with a large proportion of unskilled and semi-skilled workers.
Other factors influencing inter-industry differentials are the extent of unionization, the
structure of product markets, the ability to pay, labour-capital ratio, and the stage of
development of an industry.

4) INTER-AREA OR REGIONAL DIFFERENTIALS: Such differences arise when

workers in the same industry and the same occupational group, but living in different
geographical areas, are paid different wages. These differentials affect the supply of

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manpower for various plants in different regions. Sometimes, regional differentials are also
a part of planned mobility of labour. Regional wage differentials may be conceived in two
senses:
i. In the first sense, they are merely a part of inter-industry differentials in units or
subsidiaries spread in different areas or regions.
ii. In the second sense, they may represent real geographical differentials as a result
of living and working conditions, such as unsatisfactory or irksome climate,
isolation, sub-standard housing, disparities in the cost of living and the availability
of manpower.

5) INTER-PERSONAL DIFFERENTIALS: These differentials are between the worker of

the same plant and the same occupation due to differences in age, sex, skills, knowledge,
or experience. “Equal pay for equal work” has been recommended by the ILO Convention
(No. 100), and also by Industrial Courts, Labour Tribunals, the Minimum Wages
Committee and the Fair Wages Committee. Disparities in wages between men and women
workers have been checked by the Equal Remuneration Act, 1976.

BASIC WAGE AND OTHER BENEFITS

Wages consist of two parts – the basic wage and other allowances.

Basic wage rate: It is the wage received by a worker for a unit of time or production excluding
special payments for overtime, night work and incentive earning. If the wage rate is determined
by the job evaluation, it is called standard wage rate.

Allowances: The allowances include dearness allowance, house rent allowance, overtime pay, city
compensatory allowances and medical allowances.

Fringe benefits: These refer to compensation given to employees, over and above basic wages,
that is not directly related to output, performance or time worked.

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Time wages: It refers to wages paid on the basis of time consumed in completing work. It is
determined on the daily, weekly or monthly bases.

Piece wages: It refers to wages paid according to output of the worker i.e. piece rate basis. The
output or work done by the worker is usually expressed as per piece, per meter, per kg, etc.

Balance and Debt Method: Under this method, combination of time and piece rates is adopted.

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