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What the new wage rate index series means for salaries

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The Union labour ministry has released a new series of Wage Rate Index setting the base year at 2016, based on the recommendations of the International Labour Organization and the National Statistical Commission. Mint explains the significance of the change

The Union labour ministry has released a new series of Wage Rate Index setting the base year at 2016, based on the recommendations of the International Labour Organization and the National Statistical Commission. Mint explains the significance of the change.

What is the new wage series about?

The Labour Bureau, which comes under the Union ministry of labour and employment, has decided to revise the base year of India’s wage rate index (WRI) to 2016 from 1963-65, a series which is nearly six decades old. The new series seeks to cover 700 occupations and makes the index more representative, expanding the number of industries, sample size and the weightage of industries. The index will be compiled twice a year, on the first of January and July every year on a point-to-point basis. The new series is expected to provide valuable insights to determine minimum wages.

What are the key changes?

While the previous series covered 21 industries, the new one covers 37, including 30 from the manufacturing sector and three each from the mining and plantation sectors. Wage data will be collected from 2,881 units covering these 37 industries. Sector-level weights in the new series have been changed, with manufacturing’s weightage raised substantially over time. Also, mica mines industry has been replaced with the oil mining industry. Moreover, 16 industries, including synthetic textiles, publishing, footwear, petroleum, drugs and medicines, have been added under the manufacturing sector.

More inclusive
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More inclusive

What does the updated WRI for 2020 show?

Taking 37 industries into consideration, the all-India wage rate index stood at 119.7 in the second half of 2020, showing an increment of 1.6% as against the first half of 2020. The highest WRI of 131.4 was in the drugs & medicines industry, followed by the sugar industry with a WRI of 129.8. Among sectors, the highest WRI was recorded for the plantation sector at 126.5.

Is it apt to have 2016 as the base year?

A comparison would be realistic if the base year is normal in every respect. This golden rule is applicable while selecting a base year for any index. A major section of the economy, especially the unorganized sector, had undergone a major shakeup following demonetization in November 2016. Certainly, there could have been downward pressure on wage levels due to inherent difficulties and unemployment. Taking a lower wage level as the base would be gross injustice to the labour force.

What does this mean for stakeholders?

Determination of the latest wage patterns across occupations will play a key role in determining minimum wages and national floor wage policy. It provides useful tips to employers in deciding on the appropriate human resource strategy. Also, managements can use the data to finalize corporate strategies by comprehending the likely expenditure on employee compensation, consequent per unit cost, marketing strategy, and assess viability of the business.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.

 

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