Methods of Wage Fixation and Wage Policy in India

8/13/2019 Methods of Wage Fixation and Wage Policy in India

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Chapter 3 Methods of Wage Fixation and Wage Policy in India

Legislation:

The Minimum Wages Act, 1948:

The Minimum Wages Act, 1948 is an Indian legislation enacted by the Parliament

of India for statutory fixing of minimum wages to be paid to skilled and unskilled

labors.

The Indian Constitution has defined a 'living wage' that is the level of income for a

worker which will ensure a basic standard of living including good health, dignity,

comfort, education and provide for any contingency. However, to keep in mind an

industry's capacity to pay the constitution has defined a 'fair wage'.

Fair wage is that level of wage that not just maintains a level of employment, but

seeks to increase it keeping in perspective the industrys capacity to pay. To

achieve this in its first session during November 1948, the Central Advisory

Council appointed a Tripartite Committee of Fair Wage. This committee came up

with the concept of Minimum Wages.

A minimum wage is such a wage that it not only guarantees bare subsistence andpreserves efficiency but also provides for education, medical requirements and

some level of comfort.

India introduced the Minimum Wages Act in 1948, giving both the Central

government and State government jurisdiction in fixing wages. The act is legally

non-binding, but statutory. Payment of wages below the minimum wage rate

amounts to forced labour. Wage Boards are set up to review the industrys capacity

to pay and fix minimum wages such that they at least cover a family of foursrequirements of calories, shelter, clothing, education, medical assistance, and

entertainment.

Under the law, wage rates in scheduled employments differ across states, sectors,

skills, regions and occupations owing to difference in costs of living, regional


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industries' capacity to pay, consumption patterns, etc. Hence, there is no single

uniform minimum wage rate across the country and the structure has become

overly complex. The highest minimum wage rate as updated in 2012 is

Rs. 322/day in Andaman and Nicobar to Rs. 38/day in Tripura.

Collective Bargaining:

Collective bargaining is a process of negotiations between employers and a group

of employees aimed at reaching agreements that regulate working conditions. The

interests of the employees are commonly presented by representatives of a trade

union to which the employees belong.

The collective agreements reached by these negotiations usually set out wage

scales, working hours, training, health and safety, overtime, grievance

mechanisms, and rights to participate in workplace or company affairs.

The union may negotiate with a single employer (who is typically representing a

company's shareholders) or may negotiate with a group of businesses, depending

on the country, to reach an industry wide agreement. A collective agreement

functions as a labor contract between an employer and one or more unions.

Collective bargaining consists of the process of negotiation between

representatives of a union and employers (generally represented by management,

in some countries such as Austria, Sweden and the Netherlands by an employers'

organization) in respect of the terms and conditions of employment of employees,

such as wages, hours of work, working conditions, grievance-procedures, and

about the rights and responsibilities of trade unions.

The parties often refer to the result of the negotiation as a collective bargaining

agreement (CBA) or as a collective employment agreement (CEA).


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Wage Boards:

In the 1950s and 1960s, when the organized labour sector was at a nascent stage of

its development without adequate unionization or with trade unions, without

adequate bargaining power, the Government of India, in appreciation of theproblems which arise in the arena of wage fixation due to absence of such

bargaining power, constituted various Wage Boards.

The Wage Boards are tripartite in character in which representative of workers,

employers, independent members participate and finalize the recommendation. The

Wage Boards for journalists and non - journalist newspaper and news-agency

employees are statutory in nature.

The Working Journalists and other Newspaper Employees (Conditions of Service)

and Miscellaneous Provision Act, 1955 (45 of 1995) (in short, the Act) provides

for regulation of conditions of service of working journalists and non-journalist

newspaper employees. The section 9 and Section 13 C of the Act, inter-alia,

provide for constitution of two Wage Boards for fixing or revising rates of wages

in respect of both working journalists and non-journalist newspaper employees,

respectively.

The Central Government shall, as and when considered necessary, constitute Wage

Boards, which shall consists of-

a) Three persons representing employers in relation to Newspaper Establishments

b) Three persons representing working journalists for the Wage Board constituted

under Section 9 and persons representing non - journalist newspaper

employees for the Wage Board constitute under Section 13C of the Act.

c) Four independent persons, one of whom shall be person who is, or has been, a

judge of High Court or the Supreme Court, and who shall be appointed by

the Government as the Chairman thereof.

Since 1955, the Government of India has constituted 5 Wage Boards at regular

intervals for the working journalist and non-journalist newspaper employees. The


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following table gives the details of the constitution of Wage Boards along other

relevant information:

S.NO Name of the Wage BoardDate of appointment of

the Wage Board

Date on which final

report was submitted tothe Government

Date of acceptance of

the recommendationsby the Government

I Wage Board for Working Journalist 02-05-1956 NA 10-05-1957

II(a) Wage Boards for

Working Journalists12-11-1963 17-07-1967 27-10-1967

(b) Wage Board forNon-journalist Newspaper Employees

25-02-1964 17-07-1967 18-11-1967

III(a) Wage Board for

Working Journalists11-06-1975 13-08-1980 26-12-1980

(b) Wage Board for Non-Journalists Newspaper Employees

06-02-1976 13-08-1980 20-07-1981

IVWage Boards for WorkingJournalists and Non-JournalistNewspaper Employees

17-07-1985 30-05-1989 31-08-1989

VWage Boards for Working

journalists and Non-JournalistNewspaper Employees

02-09-1994 25-07-200005-12-2000

and15-12-2000

VI

Wage Boards for Workingjournalists and Non-JournalistNewspaper Employees 24.05.2007

The prime responsibility for implementing the recommendations of the Wage

Board rests with the concerned State Governments / Union Territories under the

provision of the act.

Pay Commission:

Definition:

The Pay Commission is an administrative system/mechanism that the government

of India set up in 1956 to determine the salaries of government employees.


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Since India's Independence, seven pay commissions have been set up on a regular

basis to review and make recommendations on the work and pay structure of all

civil and military divisions of the Government of India.

The First Pay Commission was established in 1956, and since then, every decadehas seen the birth of a commission that decides the wages of government

employees for a particular time-frame.

The second Pay Commission was set up in August 1957 and gave its report in two

years. The third Pay Commission, set up in April 1970, submitted its report in

March 1973.

The recommendations of the Fourth Pay Commission covered the period between1986 and 1996. The Fifth Pay Commission covered the period between 1996 and

this year.

The Union Cabinet, under the stewardship of Prime Minister Manmohan Singh,

approved the setting up of the 6th Pay Commission to revise the pay scales of

central government employees in July 2006.

First Pay Commission:

The first pay commission was constituted in May 1946, and had submitted its

report in a year, and the importance is on the report. The first pay commission was

based upon the idea of living wages to the employees, this idea was taken from

the Islington Commission and the commission observed that the test formulated

by the Islington Commission is only to be liberally interpreted to suit the

conditions of the present day and to be qualified by the condition that in no case

should be a mans pay be less than a living wage."

The commission emphasized on the idea of the living wages and stated that the

government which is going to introduce the minimum wages legislation for the

workers of the private industry should also follow the same principle for its own

employees. The commission basically recommended that the lowest rung

employee should at least get minimum wages.


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Second Pay Commission:

The second pay commission was set up in August 1957, 10 years after

independence and it gave its report after two years. The recommendations of the

second pay commission had a financial impact of Rs 396 million.

The second pay commission reiterated the principle on which the salaries have to

be determined. It stated that the pay structure and the working conditions of the

government employee should be crafted in a way so as to ensure efficient

functioning of the system by recruiting persons with a minimum qualification.

Third Pay Commission:

The third pay commission set up in April 1970 gave its report in March 1973 i.e. ittook almost 3 years to submit the report, and created proposals that cost the

government Rs. 1.44 billion. The third pay commission added three very important

concepts of inclusiveness, comprehensibility, and adequacy for pay structure to be

sound in nature.

The third pay commission went beyond the idea of minimum subsistence that was

adopted by the first pay commission. The commission report say that the true test

which the government should adopt is to know whether the services are attractive

and it retains the people it needs and if these persons are satisfied by that they are

getting paid.

Fourth Pay Commission:

Constituted in June 1983, its report was given in three phases within four years and

the financial burden to the government was Rs.12.82 billion. This commission has

been set up on dated 18.3.1987, Gazette of India (Extra ordinary) Notification No

91 dated 18.3.1987.

Fifth Pay Commission:

The Fifth Pay Commission was set up in 1994 at a cost of Rs. 17,000 crore.


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Sixth Pay Commission:

In July 2006, the Cabinet approved setting up of the sixth pay commission. This

commission has been set up with a timeframe of 18 months. The cost of hikes in

salaries was anticipated to be about Rs. 20,000 crore for a total of 5.5 million

government employees as per media speculation on the 6th Pay Commission, thereport of which was expected to be handed over in late March/early April 2008.

The employees had threatened to go on a nationwide strike if the government

failed to hike their salaries. Reasons for the demand of hikes include rising

inflation and rising pay in the private sector due to the forces of Globalization.

The Sixth Pay Commission mainly focused on removing ambiguity in respect of

various pay scales and mainly focused on reducing number of pay scales and bringthe idea of pay bands. It recommended for removal of Group-D cadre.

Seventh Pay Commission:

On September 25, 2013 Government of India announced the constitution of

Seventh Central Pay Commission. The recommendations of Seventh commission

are likely to be implemented with effect from January 1, 2016.

Adjudication:

Adjudication is the legal process by which an arbitrator or judge reviews evidence

and argumentation including legal reasoning set forth by opposing parties or

litigants to come to a decision which determines rights and obligations between the

parties involved.

Three types of disputes are resolved through adjudication:

Disputes between private parties, such as individuals or corporations.

Disputes between private parties and public officials.

Disputes between public officials or public bodies.


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It may also be defined as-

Adjudication involves intervention in the dispute by a third party appointed by the

government for the purpose of deciding the nature of final settlement.

Why? When the government gets a report of the failure of conciliation, it has to decide

whether it would be appropriate to refer the dispute to adjudication.

Developing countries cant afford to suffer loss of production from long-drawn

strikes and lockouts.

Further, the trade union cannot rely only on collective bargaining for the

protection of the interest of the workers.

Therefore, the need for intervention by the government is felt. This, the

government does by making references of disputes to the adjudicationmachinery.

Socio-Economic Importance of Adjudication:

It is always a matter of making reasonable adjustments between the two

competing claims. So the claims of the interests of the general public have to be

weighed and balanced against the claims of the individual citizen in regard to

his fundamental right. So, too, in the case of adjudication, the claims of the employer based on the

freedom of contract have to be adjusted with the claims of industrial employees

for social justice.

Types of Adjudication:

When the government gets a report of the failure of conciliation proceedings, it

has to decide whether it would be appropriate to refer the dispute to arbitration. The reference of dispute to adjudication is at the discretion of the government.

When both parties, of their own accord, agree to refer the dispute to

adjudication, it is obligatory on the part of the government to make a reference.

When a reference to adjudication is made by the parties, it is called Voluntary

Adjudication.


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On the other hand, when reference is made to adjudication by the government

without the consent of either or both the parties to the dispute, it is known as

Compulsory Adjudication.

Wage Fixation in Public Sectors:

Since independence the government has striven to adopt wage fixation policies

with regard to public sector organized labour. Initially the role was discharged by

the judiciary and a while later by tripartite machinery - the wage boards.

However, the setting up of the Bureau of Public Enterprises in the early 1960s

signaled a shift to greater centralization. Despite the bureau's existence as a 'supra-bureaucracy', its attempts to impose wage standardization and salary restraints but

for a brief period during the emergency years, proved by and large ineffectual.

Criteria for Wage Fixation:

Besides the basic factors provide by Job Description and Job Evaluation, there are

some other criteria also which are taken into consideration while fixing the Wagesand Salaries in the Public Sectors which are as follows:

The Organizations ability to pay

Supply and Demand of Labor

The prevailing Market Rate

The Cost of Living

Living Wage

Productivity Trade Unions Bargaining Power

Job Requirements

Managerial Attitude

Psychological and Sociological factors

Levels of skills available in the market


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Wage Policy:

Definition:

Wage Policy are the principles acting as guidelines for determining a wage

structure.

Initially as an economic issue it was mainly the concern of the employer while

state was adopting laissez faire policy. But, with the industrial progress and

subsequent industrial balance between employers, employees, wage bargain has

become a matter for three fold concern of the employer, employee, and the state.

Objectives:

Economic Objectives of Wage Policy:

Full employment and optimum allocation of all resources

The highest degree of economic stability consistent with an optimum rate of

economic progress

Maximum income security for all sections of the community

Social Objectives of Wage Policy:

The elimination of exceptionally low wages

The establishment of fair labour standards

The protection of wage earners from the effects of rising prices

The incentive for workers to improve their productive performance

Wage Policy is a democratic set up so it cannot be enforced by the Govt. alone. Its

implementation has to be secured through employers and employees organizations

at bargaining table i.e. by consensus.

Need:

In India it is built around certain cardinal principles:

Equal pay for equal work

Living wages for all workers so that they lead a decent life


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Payment of wages on appointed dates without unauthorized deductions

Resolving wage related issues through collective bargaining

Payment of statutory bonus at 8.33 percent as per legal provisions

Ensuring a fair, equitable wage plan for various employees without significant

wage differences.The capacity to pay (according to Supreme Court ruling- an employer who

cannot pay minimum wages has no right to exist)

Determining fair wages over and above minimum wages with due regards to-

(i) the productivity of labour

(ii) the prevailing level of wages

(iii) the level of national income and distribution

(iv) the place of industry in the economy of the company

To compensate for the rise in cost of living

Formulation of Wage Policy in India:

The term wage policy refers to all systematic efforts of the Government in

relation to a national wage and salary system, The policy lays down guidelines

concerning the level and structure of wages.

The guiding principles of national wage policy are as follows:

Sub serves the national objective of economic growth with social justice.

Promote employment, productivity and capital formation.

Remove sectoral imbalances and wage differentials.

Promote price stability.

Avoid automatic double linkages.

Ensure rising real wages consistent with the capacity of the industry and thenational economy.

Have relationship with national income, state of the industry and prevailing

wage rates.


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Pay structure in a company depends upon several factors, e.g., wage settlements,

labor market situation, companys nature and size, etc. Pay structure consists of

certain grades, scale and range of pay in each scale. Each scale has a minimum and

a maximum limit. Jobs placed within a particular grade carry the same value

though the actual pay in a grade depends upon length of service and orperformance of the employee.

Recommendations in Wage Policy:

First Five Year Plan (1951-56) suggested:

Pre-war levels of real wages be restored as a first step towards living wages

through increased productivityReduction of disparities in income

Reduction of gap between existing and living wages

Standardization and maintenance of wage differentials to provide incentives

Second Five Year Plan (1956-61) stressed:

Improvement in wages through increased productivity

Improved layout of plants, working conditions

Application of system of payment by result

Improvement in management practices

Recommended settlement of industry wise wage disputes through tripartite wage

boards

Third Five Year Plan (1961-66) reinforced:

Wage policy of preceding two plans

Rationalization of work load/ work methods and functions of management

Three Annual plans (1966-69) aims at framing Wage Policy after taking

considering:

Price level

Employment level

Social Justice

Capital required by firm for future growth


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Fourth Five Year Plan (1969-74) emphasized:

Price stability

Extension of system of payment by results

Fifth Five Year Plan (1974-79) recommended:

That the reward system in terms of wages and non-wage benefits must be related

to performance records

A wage structure to narrow down disparities within the organized sector itself.

Govt. to intervene in setting up of wages & prices

Sixth Five Year Plan (1980-85) stressed on:

The need for bringing about a greater rationalization of wage structure and linkingof wages at least in some measure to labour productivity

Modernization in industry

Evolve wage structure without restrictions on negotiations

Seventh Five Year Plan (1985-90) asserted that:

There is a need for improvement in capacity utilization, efficiency and

productivity

Rise in levels of real income

Reduction in disparities

Sectoral shifts in desired directions

Eighth Five Year Plan (1992-97) focused on:

Formulation of wage policy relating to child labour, bonded labour, rural labour,

women labour and inter-state migrant labour

Limitations of Wage Policy:

Socio-economic setup of our society

Enforcement in unorganized sector

Lack of unity among unions

Prices rise almost beyond Govt.s regulatory capabilities


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Wages lag far behind labour productivity

Lesser number of workers in organized sector take away bulk of wages than

unorganized

Wage incomes are consumption oriented rather than savings oriented so

increased wages would mean increased consumption. Therefore economicgrowth may not be affected positively as it depends upon rate of investment

possible through savings.

Ever increasing addition to workforce yet dearth of skilled labour

High wages may force employer to shift towards capital intensive methods

High wages reduce capital for growth

National Wage Policy:

A national wage policy aims at establishing wages at the highest possible level,

which the economic conditions of the country permit and ensuring that the wage

earner gets a fair share of the increased prosperity of the country as a whole

resulting from the economic development.

Main objectives of national wage policy in India are discussed below:

One of the objectives of economic planning is the raising of the standard of living

of the people. This means that the benefits of planned economic development

should be distributed among the different sections of the society.

Therefore, in achieving a socialistic pattern of society, the needs for proper

rewards to the working class of the countryman never is over emphasized.

The term wage policy here refers to legislation or government action calculated

to affect the level or structure of wages or both, for the purpose of attaining the

following specific objectives of social and economic policy:

1. To eliminate malpractices in the payment of wages.

2. To set minimum wages for workers, whose bargaining position is weak due to

the fact that they are either un-organized or inefficiently organized.


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3. To rationalize inter-occupational, inter-industrial and inter-regional wage

differentials in such a way that disparities are reduced in a phased manner.

4. To ensure reduction of disparities of wages and salaries between the private

sector and public sector in a phased manner.

5. To compensate workers for the raise in the cost of living in such a manner thatin the process, the ratio of disparity between the highest paid and the lowest

paid worker is reduced.

6. To provide for the promotion and growth of trade unions and collective

bargaining.

7. To obtain for the workers a just share in the fruits of economic development.

8. To avoid following a policy of high wages to such an extent that it results in

substitution of capital for labour thereby reducing employment.

9. To prevent high profitability units with better capacity to pay a level of wagesfar in excess of the prevailing level of wages in other sectors.

10.To permit bilateral collective bargaining within national framework so that high

wage islands are not created.

11.To encourage the development of incentive systems of payment with a view to

raising productivity and the real wages of workers.

12.To bring about a more efficient allocation and utilization of man-power through

wage differentials and appropriate systems of payments.

In order to achieve the above objectives under the national wage policy, the

following regulations have been adopted by the state:

1. Prescribing minimum rates of wages.

2. Compulsory conciliation and arbitration.

3. Wage boards.

Income Policy:

It may be defined as the measures through which a government attempts to control

escalation in incomes (wages, salaries, dividends, rents) to restrain escalation in

prices (inflation) without increasing unemployment.


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Believers in the cost push inflation theory are the greatest advocates of incomes

policy, whereas believers in the demand push Inflation theory regard it as a

supplement to fiscal measures. Monetarists (who believe inflation is caused by

growth in money supply) consider it irrelevant in controlling inflation.

Income policies have often been resorted to during wartime. During the French

Revolution, "The Law of the Maximum" imposed price controls (by penalty of

death) in an unsuccessful attempt to curb inflation, and such measures were also

attempted after World War II. Peacetime income policies were resorted to in the

USA in August 1971 as a response to inflation. The wage and price controls were

effective initially but were made less restrictive in January 1973, and later removed

when they seemed to be having no effect on curbing inflation. Incomes policies

were successful in the United Kingdom during World War II but less successful inthe post-war era.

Incomes policies vary from "voluntary" wage and price guidelines to mandatory

controls like price/wage freezes. One variant is "tax-based incomes policies"

(TIPs), where a government fee is imposed on those firms that raise prices and/or

wages more than the controls allow.

Some economists agree that a credible incomes policy would help prevent

inflation. However, this would have other effects. By arbitrarily interfering with

price signals, they provide an additional bar to achieving economic efficiency,

potentially leading to shortages and declines in the quality of goods on the market,

while requiring large government bureaucracies for their enforcement. This is what

happened in the United States during the early 1970s. When the price of a good is

lowered artificially, it creates less supply and more demand for the product,

thereby creating shortages.

Some economists argue that incomes policies are less expensive (more efficient)

than recessions as a way of fighting inflation, at least for mild inflation. Yet others

argue that controls and mild recessions can be complementary solutions for

relatively mild inflation.


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The policy has the best chance of being credible and effective for those sectors of

the economy dominated by monopolies or oligopolies, particularly nationalized

industry, with a significant sector of workers organized in labor unions. These

institutions enable collective negotiation and monitoring of the wage and price

agreements.

Other economists argue that inflation is essentially a monetary phenomenon, and

the only way to deal with it is by controlling the money supply, either directly or

by means of interest rates. They argue that price inflation is only a symptom of

previous monetary inflation caused by central bank money creation. This view

holds that without a totally planned economy the incomes policy can never work,

because the excess money in the economy will greatly distort areas which the

incomes policy does not cover.

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Methods of Wage Fixation and Wage Policy in India