Revising Minimum Wage Levels Could Slash Inequality, Help Millions

Without the guardrails that protect the millions who have no recourse to legal redressal, chasing a $5-trillion economy can result in disturbing wealth inequalities.

There was a compelling argument a few months ago in an article in a leading newspaper as to how the problem in India was poverty and not income inequality.

To bolster this point, the writer went on to ask, which country in the world would the reader hypothetically choose to be poor in: the US, which is one of the most unequal nations in the world, or in Bangladesh, where inequality is nowhere close to the US but poverty is exceedingly high?

The question was rhetorical.

The writer went on to say, let’s chase the 7% GDP growth, let’s go after the $5-trillion goal, the rich will get richer yes, but poverty will also reduce.

As early as 2014, the top 50% of the Indian population held 97.5% of the total wealth, while the bottom 50% held the balance of 2.5%. India has fast become one of the most unequal countries in the world, sharing the honour with the US, China and Russia.

But while it is perhaps not so bad to be poor in the US, as suggested by the article that I referred to, is it really okay to be poor in India? The per capita GDP of the US is in the $60,000 ballpark, while it is around $7,000 in India, corrected for PPP. It is surely not all right to be poor in India.

This is where the issue of minimum wages comes in.

Under the Minimum Wages Act 1948 (MWA), wage boards have been set up in states to review the industry’s capacity to pay and fix minimum wages, such that they at least cover a family of four’s requirements for calories, shelter, clothing, education, medical assistance, and entertainment.

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I want to now use the examples of domestic workers to illustrate this issue.

When I looked at the minimum wages for domestic workers recommended by three state governments, they ranged from Rs 8,000 per month to Rs 8,500 per month, for an 8-hour working day. How will Rs 8000 “at least cover a family of four’s requirements of calories, shelter, clothing, education, medical assistance, and entertainment”, as the MWA suggests?

According to a report in a business newspaper in early 2019, there were close to 40 lakh domestic workers in India and “the ministry of labour and employment has been working on a national policy for domestic workers over past three years but various propositions have been pulled down by employers who said they would significantly add to their monthly bills.”

We have an unfair situation here. On the one hand, the providers of domestic services are perhaps being paid less than what we would believe will at least cover a family of four’s requirements of calories, shelter, clothing, education, medical assistance, and entertainment. On the other hand, the receivers of the service, very much part of the top half of the pyramid, are appearing to be resisting this fair increase, complaining that it would add significantly to their monthly bills.

A woman worker in the construction sector. Photo: Reuters/Adnan Abidi

The time is surely ripe for a minimum wages reform programme, covering many of the informal categories of labour. Without that, these millions simply don’t have a chance of getting a fair value for their services. In our country, more than any other country, the poor are even less educated, even more side-lined through centuries-long difference along the lines of class, caste and religion. They don’t have a voice or a legal framework under which they can represent their case.

I took the example of the domestic worker to build one story. But there are many more like them. The safai karmachari, the coolie, the helper in the neighbourhood restaurant, the worker in the local construction firm, all these add up to millions and millions of urban poor whose minimum wages have traditionally been very low. And will continue to be very low unless a bold reform is brought in.

That bold reform will mean a decent increase in the minimum wages for all these categories of workers. It will entail the creation of awareness about their wage levels and their rights to legal redressal. It will mean a mechanism that reviews this every two years.

Also read: Simplifying Minimum Wage System Will Reduce Inequality: Economic Survey

‘Minimum wages’ is a subject under the Concurrent List, which means that the Centre can lead the effort in this realm and work with multiple state governments to create a huge impact among millions of urban poor.

The minimum wage overhaul will be a foundation-building reform that can help millions stand on their own feet with dignity, satisfied that all their hard work is being given the value that it deserves.

This is where the connection between income or wealth inequality and poverty starts becoming visible. As we start paying our domestic workers more and as restaurants charge us more because they have to recover the higher costs of their employees, the entire income pyramid changes.

Also, our own retained savings drop as a result of spending more on various services and the wealth pyramid also starts improving a little more at the bottom, leading to a fairer, more just world with more dignity and self-esteem.

Income inequality is not the cause of poverty, surely. But without the guardrails that protect the millions who have neither recourse to legal redressal nor a voice, chasing the $5-trillion dream could result in disturbing income and wealth inequalities, without the accompanying benefits that are allotted in many countries across the world while chasing a similar goal.

For that not to happen, the state will need to become the patron of these silent millions.

C. K. Venkataraman is the managing director of Titan Company Limited.