Since the beginning of the 1990s, India has witnessed 16 major all-India strikes by big trade unions demanding, inter alia, a revision of minimum wages as per the Indian Labour Conference, 1958, guidelines, the Supreme Court judgement in the Reptakos Brett & Co. case in 1991 (calculations vary from Rs18,000 to Rs24,000) and universal coverage of the Minimum Wages Act (as opposed to its applicability to scheduled employments only in the present). Owing to their continued struggles, the Union cabinet recently approved the Code on Wages Bill which proposes to make minimum wage a statutory right for all workers and provide for a statutory national minimum wage through a complex system of minimum wage fixation by the Centre and the states, with a rider that the wage fixed by the latter shall not be lower than that set by the former. Surely the minimum wage rate is set to be revised, though not near the levels demanded by trade unions, and this has caused huge concern among some academics and industry bodies.
add_main_imageCritics, including Archit Puri and Anupam Manur, argue that this policy will be counter-productive. According to the model by George Stigler, which the authors rely on, minimum wage acts as the price floor that sets the legally mandated wage rate above the market-clearing wage rate, which raises labour cost, and in turn this leads to a decline in demand for labour. The predictions of this model include higher unemployment, lower family income and no impact on poverty elimination. The model’s effect looks credible graphically but it ignores the dynamics of minimum wages and has little relevance to the real world.
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