<p>The term &ldquo;jobless growth&rdquo;, much in the news these days, is used to describe the phenomenon of GDP growth without a commensurate increase in (formal) employment. How can GDP grow without job creation? The increasing use of machines in production is one crucial reason.&nbsp;</p>

<p>Annual Survey of Industries data, which reports on organised or formal sector firms, shows that the capital to labour ratio has steadily risen in most industries over the past few decades. In a country like India, where labour is abundant and cheap, why are firms choosing to substitute capital (machines) for labour? Several explanations have been offered, none of them exclusive of the others.</p>

<p>One story, popular among some economists as well as policy-makers is that India&rsquo;s labour laws are too restrictive. Faced with an excessive regulation of hiring and firing, firms prefer to substitute machines for workers. A vigorous debate has raged over this issue. Although a consensus of sorts seems to be forming in the policy circles that labour laws are a big constraint on job creation, and several steps have already been taken at the centre and state level to dilute these laws, two things are worth noting. First, firm owners often do not list labour laws among the top two or three constraints that they face in expanding their business. Rather inadequate infrastructure, government procedures, and weak demand top the list.&nbsp;</p>

<p>To put it another way, if strong demand were assured and infrastructure streamlined, then labour laws would be unlikely to get in the way of firm expansion. Second, if firms really wanted to expand while avoiding being subject to labour laws, we should observe a large number of firms employing workers up to just below the threshold where labour laws kick in. But we observe no such &ldquo;clumping.&rdquo;</p>

<p>Of course, it is possible that firms do not face this constraint simply because they hire informal (off the books) workers via contractors. This way expansion is assured without being subject to labour laws. Indeed, the data clearly show an increasing presence of informal workers within formal sector firms. But the solution to this proliferation of precarious jobs is actually to make sure these jobs get formalised and come under the ambit of regulation. And not to remove regulation on existing formal jobs. What is needed is an intelligent approach that strengthens those regulations that will improve job security, working conditions, and rights to bargain collectively, while allowing firms the flexibility to shed labour after meeting due obligations and safeguards.</p>

<p>The second explanation for increasing mechanisation draws on the fact that in recent decades, the Indian economy has become increasingly more integrated into the global economy. Trade liberalisation makes the import of capital and intermediate goods easier. Imported capital goods are relatively cheaper and this reduces the relative price of capital vis-a-vis labour, inducing firms to substitute capital for labour. Trade liberalisation also forced domestic firms to compete with foreign firms in the domestic market. Since foreign firms bring in products produced with much more capital-intensive technology and lower unit costs (because they often operate in capital-rich, labour-scarce economies), domestic firms also have to adopt that technology to stay competitive. And finally, trade liberalisation allows Indian firms to access foreign markets, where again they have to compete with firms producing with capital-intensive technology.</p>

<p>A third explanation is that growth in the post-reform period has benefited a narrow class of Indians, thereby, increasing inequality. Hence expenditure by the elite has become an important source of demand for domestic manufacturers. This elite demand is skewed towards products, such as automobiles, electronics, white goods, higher-end services etc. which are produced by capital-intensive and not labour-intensive technology as it is done in sectors producing food and clothing etc. So a growth in elite demand, raises GDP but does not create jobs.</p>

<p>All this has serious implications for the &ldquo;normal&rdquo; way in which other countries historically managed to create employment, through increasing manufacturing activities. It is not available anymore because countries that are expanding their industrial and manufacturing base today have to compete with much more advanced countries in the same market. As a result, in many developing countries, manufacturing share of employment is declining instead of growing. Workers are moving directly from agriculture into services. This has been called &ldquo;premature deindustrialization.&rdquo;</p>

<p>Finally, at the ideological level, governments in countries like India have willingly constrained themselves. They have not adopted strategic trade and industrial policies for fear of being labeled &ldquo;protectionist,&rdquo; &ldquo;anti-market&rdquo;, &ldquo;anti-investor&rdquo;, anti-globalisation&rdquo; etc. In fact, a large economy like India should have significant leeway in policy-making to suit its own priorities. After all the true test of a well-functioning economy is whether it makes life better for all its citizens, not whether it is open and global.</p>


Increasing uses of informal workers, rising demands of elites and a globalised economy are keeping Indians jobless.

The term “jobless growth”, much in the news these days, is used to describe the phenomenon of GDP growth without a commensurate increase in (formal) employment. How can GDP grow without job creation? The increasing use of machines in production is one crucial reason. Annual Survey of Industries data, which reports on organised or formal sector firms, shows that the capital to labour ratio has steadily risen in most industries over the past few decades. In a country like India, where labour is abundant and cheap, why are firms choosing to substitute capital (machines) for labour? Several explanations have been offered, none of them exclusive of the others. One story, popular among some economists as well as policy-makers is that India’s labour laws are too restrictive. Faced with an excessive regulation of hiring and firing, firms prefer to substitute machines for workers. A vigorous debate has raged over this issue. Although a consensus of sorts seems to be forming in the policy circles that labour laws are a big constraint on job creation, and several steps have already been taken at the centre and state level to dilute these laws, two things are worth noting. First, firm owners often do not list labour laws among the top two or three constraints that they face in expanding their business. Rather inadequate infrastructure, government procedures, and weak demand top the list. To put it another way, if strong demand were assured and infrastructure streamlined, then labour laws would be unlikely to get in the way of firm expansion. Second, if firms really wanted to expand while avoiding being subject to labour laws, we should observe a large number of firms employing workers up to just below the threshold where labour laws kick in. But we observe no such “clumping.” Of course, it is possible that firms do not face this constraint simply because they hire informal (off the books) workers via contractors. This way expansion is assured without being subject to labour laws. Indeed, the data clearly show an increasing presence of informal workers within formal sector firms. But the solution to this proliferation of precarious jobs is actually to make sure these jobs get formalised and come under the ambit of regulation. And not to remove regulation on existing formal jobs. What is needed is an intelligent approach that strengthens those regulations that will improve job security, working conditions, and rights to bargain collectively, while allowing firms the flexibility to shed labour after meeting due obligations and safeguards. The second explanation for increasing mechanisation draws on the fact that in recent decades, the Indian economy has become increasingly more integrated into the global economy. Trade liberalisation makes the import of capital and intermediate goods easier. Imported capital goods are relatively cheaper and this reduces the relative price of capital vis-a-vis labour, inducing firms to substitute capital for labour. Trade liberalisation also forced domestic firms to compete with foreign firms in the domestic market. Since foreign firms bring in products produced with much more capital-intensive technology and lower unit costs (because they often operate in capital-rich, labour-scarce economies), domestic firms also have to adopt that technology to stay competitive. And finally, trade liberalisation allows Indian firms to access foreign markets, where again they have to compete with firms producing with capital-intensive technology. A third explanation is that growth in the post-reform period has benefited a narrow class of Indians, thereby, increasing inequality. Hence expenditure by the elite has become an important source of demand for domestic manufacturers. This elite demand is skewed towards products, such as automobiles, electronics, white goods, higher-end services etc. which are produced by capital-intensive and not labour-intensive technology as it is done in sectors producing food and clothing etc. So a growth in elite demand, raises GDP but does not create jobs. All this has serious implications for the “normal” way in which other countries historically managed to create employment, through increasing manufacturing activities. It is not available anymore because countries that are expanding their industrial and manufacturing base today have to compete with much more advanced countries in the same market. As a result, in many developing countries, manufacturing share of employment is declining instead of growing. Workers are moving directly from agriculture into services. This has been called “premature deindustrialization.” Finally, at the ideological level, governments in countries like India have willingly constrained themselves. They have not adopted strategic trade and industrial policies for fear of being labeled “protectionist,” “anti-market”, “anti-investor”, anti-globalisation” etc. In fact, a large economy like India should have significant leeway in policy-making to suit its own priorities. After all the true test of a well-functioning economy is whether it makes life better for all its citizens, not whether it is open and global.

Why is India's growth not creating more jobs?

<p>First, consider the numbers. Between 2003 and 2009, the high growth years of the economy, when GDP grew by 8 per cent per year on average, the number of good jobs, that is, jobs in the formal sector of the economy, grew at not even one-tenth that number. Look at it another way. Every year millions of new aspirants enter the job market to compete for a few hundred thousand new jobs.&nbsp;</p>

<p>&nbsp;</p>

<p>Now let us descend to the ground. We witness enormous agitations for reservations in government jobs rising from traditionally dominant castes, such as Jats, Patels, and Marathas. Even the lowest paid government jobs regularly attract such large numbers of extremely over-qualified applicants that violence ensues in the wake of examinations. Around two weeks ago, in West Bengal, 2.5 million young men and women appeared for an exam for 6000 Group-D positions in the state government. Graduates and post-graduates had applied for these positions which require an elementary school certificate and pay Rs. 16,200 per month.&nbsp;</p>

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<h5>What is the economy for, anyway? It is always a good question to ask whenever we risk getting lost in GDP numbers, policy reforms, and stock market movements</h5>
</blockquote>
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<p>&nbsp;</p>

<p>One increasingly popular term captures all this: &ldquo;jobless growth.&rdquo; While this phenomenon has been known at least since the mid-1990s, and is observed across the world, it is becoming a hot political issue. And not a day too soon.&nbsp;</p>

<p>&nbsp;</p>

<p>What is the economy for, anyway? It is always a good question to ask whenever we risk getting lost in GDP numbers, policy reforms, and stock market movements. These are all means to an end, viz. enabling all of us to enjoy fulfilling, creative, happy lives. In a market economy, adequate regular money income is a precondition for such a life. Yet our economy continues to deny this precondition to the vast majority of its workers. So, while GDP grows at some of the fastest rates seen across the world, the number of people who are able to enjoy a good life increase at a much much slower rate. And even this increase is very uneven across regions, occupations, castes, genders, and religions with some, like displaced farmers and artisans seeing declines in their living standards.&nbsp;</p>

<p>&nbsp;</p>

<p>Riding a wave of resentment against the previous regime, the Prime Minister himself made jobs a central issue during his campaign. But three years later, not much has changed and the BJP government is being seen as a failure on the job creation front. After several weeks of bad press on this issue, a few days ago, BJP President Amit Shah issued a statement that it was not possible to provide formal sector jobs to everyone in a country of 125&nbsp; crore people. This is a telling as well as an astonishing statement. Telling because it admits to a truth that few would admit to. That under the present set of policies (whether BJP or UPA) universal employment is impossible. Astonishing because for decades the transition to a completely formal economy has been the very definition of development. That we, and many other countries, have failed at acheiving this is surely an indictment of our policies. But are we then giving up on development? Or are we redefining it? And if so how? There is no answer.</p>

<p>&nbsp;</p>

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<h5>Regular salaried workers account for only 20 per cent of all workers in India</h5>
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<p>The intense hunger for even the lowest paid government jobs comes as no surprise once we take a look at the Ministry of Labour numbers on earnings in the Indian labour market. According to the most recent Employment-Unemployment Survey of the Labour Bureau (2014-2015), regular salaried workers account for only 20 per cent of all workers in India. Earnings from either self-employment or casual wage work (both of which together account for the remaining 80 per cent of the workforce) fall far short of a secure, decent, livelihood.&nbsp;</p>

<p>&nbsp;</p>

<p>Nationally, 67 per cent of households reports monthly earnings of Rs. 10,000 or less. 98 per cent are under Rs. 50,000 per month. Earning over Rs 1 lakh per month puts a household in the top 0.2 per cent of income earners in the country.&nbsp; More than half of the regular wage/salaried workers i.e. 57 per cent have monthly average earnings of up to Rs 10,000, well under the government minimum salary under the 7th pay commission. 59 per cent of the casual workers has monthly earnings of up to Rs 5000.</p>

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<h5>Successive governments at the Centre and in the states have embraced liberalisation and privatisation policies that have failed to generate jobs</h5>
</blockquote>
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<p>Of course, the current government in Delhi must take its share of the blame for the jobs crisis. But there is plenty of blame to go around. Successive governments at the Centre and in the states have embraced liberalisation and privatisation policies that have failed to generate jobs.&nbsp;</p>

<p>&nbsp;</p>

<p>But the problem goes beyond India too. In the 1950s-80s, in Japan, Korea and the other &ldquo;East Asian Miracle countries&rdquo;, rapid GDP growth generated a vast number of jobs. This shifted a predominantly agricultural workforce to manufacturing and services. Not only that, jobs were created in the formal sector.&nbsp;</p>

<p>&nbsp;</p>

<p>In contrast, in India and China, particularly since the 1990s, despite high levels of growth, formal employment generation has been slow. This is a general phenomenon across Asia. Manufacturing, in particular, is a big concern. In the 2005-2011 period, according to National Sample Survey data, manufacturing employment in India increased by 6 million while that in construction increased by 25 million. Construction accounted for half of all new non-agricultural jobs added in this period. The &ldquo;Make in India&rdquo; campaign aims to generate 100 million jobs by 2022 in the manufacturing sector. While the goal is laudable, given trends reported above, this seems unlikely to materialise. And Amit Shah&rsquo;s statement, referred to earlier, seems to indicate that backpedaling on this issue has started already.</p>

<p>&nbsp;</p>


While GDP grows at some of the fastest rates seen across the world, the number of people who are able to enjoy a good life increase at a much much slower rate.

First, consider the numbers. Between 2003 and 2009, the high growth years of the economy, when GDP grew by 8 per cent per year on average, the number of good jobs, that is, jobs in the formal sector of the economy, grew at not even one-tenth that number. Look at it another way. Every year millions of new aspirants enter the job market to compete for a few hundred thousand new jobs. Now let us descend to the ground. We witness enormous agitations for reservations in government jobs rising from traditionally dominant castes, such as Jats, Patels, and Marathas. Even the lowest paid government jobs regularly attract such large numbers of extremely over-qualified applicants that violence ensues in the wake of examinations. Around two weeks ago, in West Bengal, 2.5 million young men and women appeared for an exam for 6000 Group-D positions in the state government. Graduates and post-graduates had applied for these positions which require an elementary school certificate and pay Rs. 16,200 per month. What is the economy for, anyway? It is always a good question to ask whenever we risk getting lost in GDP numbers, policy reforms, and stock market movements × One increasingly popular term captures all this: “jobless growth.” While this phenomenon has been known at least since the mid-1990s, and is observed across the world, it is becoming a hot political issue. And not a day too soon. What is the economy for, anyway? It is always a good question to ask whenever we risk getting lost in GDP numbers, policy reforms, and stock market movements. These are all means to an end, viz. enabling all of us to enjoy fulfilling, creative, happy lives. In a market economy, adequate regular money income is a precondition for such a life. Yet our economy continues to deny this precondition to the vast majority of its workers. So, while GDP grows at some of the fastest rates seen across the world, the number of people who are able to enjoy a good life increase at a much much slower rate. And even this increase is very uneven across regions, occupations, castes, genders, and religions with some, like displaced farmers and artisans seeing declines in their living standards. Riding a wave of resentment against the previous regime, the Prime Minister himself made jobs a central issue during his campaign. But three years later, not much has changed and the BJP government is being seen as a failure on the job creation front. After several weeks of bad press on this issue, a few days ago, BJP President Amit Shah issued a statement that it was not possible to provide formal sector jobs to everyone in a country of 125 crore people. This is a telling as well as an astonishing statement. Telling because it admits to a truth that few would admit to. That under the present set of policies (whether BJP or UPA) universal employment is impossible. Astonishing because for decades the transition to a completely formal economy has been the very definition of development. That we, and many other countries, have failed at acheiving this is surely an indictment of our policies. But are we then giving up on development? Or are we redefining it? And if so how? There is no answer. Regular salaried workers account for only 20 per cent of all workers in India × The intense hunger for even the lowest paid government jobs comes as no surprise once we take a look at the Ministry of Labour numbers on earnings in the Indian labour market. According to the most recent Employment-Unemployment Survey of the Labour Bureau (2014-2015), regular salaried workers account for only 20 per cent of all workers in India. Earnings from either self-employment or casual wage work (both of which together account for the remaining 80 per cent of the workforce) fall far short of a secure, decent, livelihood. Nationally, 67 per cent of households reports monthly earnings of Rs. 10,000 or less. 98 per cent are under Rs. 50,000 per month. Earning over Rs 1 lakh per month puts a household in the top 0.2 per cent of income earners in the country. More than half of the regular wage/salaried workers i.e. 57 per cent have monthly average earnings of up to Rs 10,000, well under the government minimum salary under the 7th pay commission. 59 per cent of the casual workers has monthly earnings of up to Rs 5000. Successive governments at the Centre and in the states have embraced liberalisation and privatisation policies that have failed to generate jobs × Of course, the current government in Delhi must take its share of the blame for the jobs crisis. But there is plenty of blame to go around. Successive governments at the Centre and in the states have embraced liberalisation and privatisation policies that have failed to generate jobs. But the problem goes beyond India too. In the 1950s-80s, in Japan, Korea and the other “East Asian Miracle countries”, rapid GDP growth generated a vast number of jobs. This shifted a predominantly agricultural workforce to manufacturing and services. Not only that, jobs were created in the formal sector. In contrast, in India and China, particularly since the 1990s, despite high levels of growth, formal employment generation has been slow. This is a general phenomenon across Asia. Manufacturing, in particular, is a big concern. In the 2005-2011 period, according to National Sample Survey data, manufacturing employment in India increased by 6 million while that in construction increased by 25 million. Construction accounted for half of all new non-agricultural jobs added in this period. The “Make in India” campaign aims to generate 100 million jobs by 2022 in the manufacturing sector. While the goal is laudable, given trends reported above, this seems unlikely to materialise. And Amit Shah’s statement, referred to earlier, seems to indicate that backpedaling on this issue has started already.

Jobless growth plagues India

<p>The recent one-day general strike on the 2nd of September brought several parts of the country to a standstill. Among the demands of the trade unions was one for raising the minimum wage to Rs. 18,000 per month. The NDA government, in an attempt to ward off the strike, had announced a hike earlier in the week from Rs. 246 per day to Rs. 350 per day (Rs. 9,100 per month for 26 working days). The unions, with the exception of the RSS-affiliated Bharatiya Mazdoor Sangh, denounced the government&rsquo;s efforts and the strike went ahead as planned.&nbsp;</p>

<p>Trade unions in India have historically fought for periodic raises in minimum wages. In 2013 there was a nationwide strike (20-21 February) during which one of the demands was for a minimum wage of Rs. 10,000 per month. There was a similar strike on&nbsp;2nd September 2015&nbsp;in which a minimum wage demand for Rs. 15,000 a month&nbsp;was made. But even though the unions have been raising this issue consistently for the past several years, increases have been paltry.&nbsp;</p>

<p>Minimum wages in India are regulated under The Minimum Wages Act (1948) and there are wage floors that, in the words of the Act, &ldquo;ensure that the laws of demand and supply are not allowed to determine the wages of workmen in industries where workers are poor, vulnerable, unorganised, and without bargaining power.&rdquo; Thus, it is based on moral or ethical and not only economic principles.<br />
<br />
The method of calculation of the &ldquo;need-based&rdquo; minimum wage dates back to 1957 when the Indian Labour Congress came up with a formula that included food, clothing, and shelter requirements for a family of four. The exact amount of the wage differs based on the occupation and geographical region. The Indian states have the freedom to set higher minimums, but conceptually these wages constitute the minimum level that the central government thinks those who work for it should earn.&nbsp;</p>

<p>After periodic inflation adjustments, the minimum wage is now in the range of Rs. 9,100 to 13,600 depending on the geographical location of the worker. One may ask, whether this constitutes a living wage in India today for a family of four. Given the rapid increases in the price of housing, education, health, and food in the past few years, the answer must be in the negative. The concept of a &ldquo;living wage&rdquo; as distinct from a &ldquo;minimum wage&rdquo; has recently gained a lot of political traction in countries such as the United States.&nbsp;</p>

<p>The Committee on Fair Wages in India has defined a &ldquo;living wage&rdquo; that includes education, health, social needs, and insurance in addition to food, shelter and clothing. Studies have shown that rapid increases in expenditures on items such as education, health, fuel, and conveyance have cut into people&rsquo;s food budgets. Indeed rise in non-food expenditures has been advanced as one of the explanations for India&rsquo;s famous calorie puzzle wherein nutritional intake has been falling even as incomes are increasing in real terms. With these economic facts in mind, the claim that the official minimum wage is not a living wage and the demand for a much larger increase in the minimum wage are both justified.</p>

<p>An&nbsp;even more important issue is that, while the central and to some extent the state governments can try to enforce the minimum wages for their own employees (either direct or employed via contractors), enforcing them in the informal or unorganised sector where the vast majority of the Indian labour force earns a living is another kettle of fish.&nbsp;</p>

<p>The present increase in wages applies to unskilled non-agricultural workers in the central sphere, which means employees of the central government or workers in affiliated undertakings in occupations, such as stone breaking and crushing, mining, sweeping and cleaning, loading, unloading, construction et cetra. The National Commission for Enterprises in the Unorganised Sector (the Sengupta Commission), which became famous for observing that 77 per cent of Indians spent Rs. 20 a day or less in 2004-05, observed that even though The Minimum Wages Act covers all workers in the formal and the informal sectors, several studies have shown that the vast majority of informal sector workers are paid below the official minimum wage for their occupation.&nbsp;</p>

<p>In some instances, there exists no official minimum wage for a given occupation, so the question of compliance does not arise. Further millions of workers in the informal sector do not receive daily wages but instead, work on their own account (self-employment) or are paid in piece wages that are not easy to convert into time wages in the absence of data on usual working hours. The earnings of such home-based and other workers often fall well short of even the low official minimum wage.&nbsp;</p>

<p>In my own fieldwork in the textile industry in Varanasi, I found that weavers were routinely paid piece wages that translated into daily wages of around Rs. 100-150 per day (in 2010), far below the stipulated minimum wage for skilled silk weavers in Uttar Pradesh, which at that time was more than Rs. 200.&nbsp;</p>

<p>The situation was even worse for women workers who were paid as low as Rs. 25 to 30 per day for embroidery work. A 2010 study by the All India Democratic Women&rsquo;s Association (AIDWA) in the Delhi-NCR region found that even after working for nearly seven hours a day home-based women workers managed to earn only Rs.32.54 per day. The daily minimum wage for unskilled workers in Delhi at the time was Rs.140. Abysmally low wages for women are often justified on grounds that they are &ldquo;supplementary earners&rdquo; or that they work in &ldquo;spare time&quot;.&nbsp;Both these are questionable, not to say sexist, assumptions.</p>

<p>How then, can we ensure that at least the basic minimum standard of living that the government stipulates should accrue to every Indian family does, in fact, accrue to them? One way to do this is to end contract work as well as the practice of allowing informal workers in formal establishments, including public sector ones. This will make wage implementation easier. This was indeed one of the demands of the general strike as well.&nbsp;</p>

<p>In the post-reform period, employment of contract workers has become a prominent feature of the way private sector firms and even public ones operate to reduce labour costs and increase flexibility. The result has been a rapid rise in contract labour and almost no increase in regular formal jobs that come with some measure of job security and other benefits.</p>

<p>But what about the vast numbers who work in the informal economy beyond informal employment in formal establishments? As mentioned above, the millions of workers in India&rsquo;s small workshops, shops, and homes who produce a large variety of goods and services from food, metalware, and textiles to mobile and auto repair earn wages far below the official minimum. Most of these businesses are tiny, employing fewer than 10 workers each. Won&rsquo;t forcing such businesses to pay higher wages, closer to the official minimum wage, result in them going out of business and destroying jobs?&nbsp;</p>

<p>This is indeed a possibility because many informal businesses do operate on very small margins. In such cases, a wage subsidy, where the government supplements private sector incomes up to a certain level, may be the way to go. We are familiar with various subsidies that the government gives to the industrial sector in the form of tax breaks, depreciation allowances, SEZs, price supports etc. However, thousands of crores of rupees worth of such subsidies have not been particularly effective in creating jobs as the subsidising capital, not surprisingly, incentivises capital-intensive production.&nbsp;</p>

<p>Instead of subsidising capital, if we seriously believe that the official minimum wage constitutes an ethical lower bound on what a worker should earn then why not subsidise labour such that informal sector wages rise to that lower bound? Such a &ldquo;wage subsidy&rdquo; has recently been suggested by the well-known economist Pranab Bardhan.&nbsp;</p>

<p>Unlike a capital subsidy, this will encourage job creation as opposed to merely economic growth. It will also have large effects in boosting spending in the economy at a time when weak demand has been an important constraint on economic growth. Further, it will end the dualism between the formal sector with its minimum and inflation-indexed wages, and the informal sector that enjoys no such protection. Moreover, it will end it by moving the informal up to the level of the formal instead of bringing the formal down by informalising it, as has been the practice thus far in the post-reform period.</p>

<p>&nbsp;</p>


The official minimum wage in India is not a living wage, particularly, for the informal sector

The recent one-day general strike on the 2nd of September brought several parts of the country to a standstill. Among the demands of the trade unions was one for raising the minimum wage to Rs. 18,000 per month. The NDA government, in an attempt to ward off the strike, had announced a hike earlier in the week from Rs. 246 per day to Rs. 350 per day (Rs. 9,100 per month for 26 working days). The unions, with the exception of the RSS-affiliated Bharatiya Mazdoor Sangh, denounced the government’s efforts and the strike went ahead as planned. Trade unions in India have historically fought for periodic raises in minimum wages. In 2013 there was a nationwide strike (20-21 February) during which one of the demands was for a minimum wage of Rs. 10,000 per month. There was a similar strike on 2nd September 2015 in which a minimum wage demand for Rs. 15,000 a month was made. But even though the unions have been raising this issue consistently for the past several years, increases have been paltry. Minimum wages in India are regulated under The Minimum Wages Act (1948) and there are wage floors that, in the words of the Act, “ensure that the laws of demand and supply are not allowed to determine the wages of workmen in industries where workers are poor, vulnerable, unorganised, and without bargaining power.” Thus, it is based on moral or ethical and not only economic principles. The method of calculation of the “need-based” minimum wage dates back to 1957 when the Indian Labour Congress came up with a formula that included food, clothing, and shelter requirements for a family of four. The exact amount of the wage differs based on the occupation and geographical region. The Indian states have the freedom to set higher minimums, but conceptually these wages constitute the minimum level that the central government thinks those who work for it should earn. After periodic inflation adjustments, the minimum wage is now in the range of Rs. 9,100 to 13,600 depending on the geographical location of the worker. One may ask, whether this constitutes a living wage in India today for a family of four. Given the rapid increases in the price of housing, education, health, and food in the past few years, the answer must be in the negative. The concept of a “living wage” as distinct from a “minimum wage” has recently gained a lot of political traction in countries such as the United States. The Committee on Fair Wages in India has defined a “living wage” that includes education, health, social needs, and insurance in addition to food, shelter and clothing. Studies have shown that rapid increases in expenditures on items such as education, health, fuel, and conveyance have cut into people’s food budgets. Indeed rise in non-food expenditures has been advanced as one of the explanations for India’s famous calorie puzzle wherein nutritional intake has been falling even as incomes are increasing in real terms. With these economic facts in mind, the claim that the official minimum wage is not a living wage and the demand for a much larger increase in the minimum wage are both justified. An even more important issue is that, while the central and to some extent the state governments can try to enforce the minimum wages for their own employees (either direct or employed via contractors), enforcing them in the informal or unorganised sector where the vast majority of the Indian labour force earns a living is another kettle of fish. The present increase in wages applies to unskilled non-agricultural workers in the central sphere, which means employees of the central government or workers in affiliated undertakings in occupations, such as stone breaking and crushing, mining, sweeping and cleaning, loading, unloading, construction et cetra. The National Commission for Enterprises in the Unorganised Sector (the Sengupta Commission), which became famous for observing that 77 per cent of Indians spent Rs. 20 a day or less in 2004-05, observed that even though The Minimum Wages Act covers all workers in the formal and the informal sectors, several studies have shown that the vast majority of informal sector workers are paid below the official minimum wage for their occupation. In some instances, there exists no official minimum wage for a given occupation, so the question of compliance does not arise. Further millions of workers in the informal sector do not receive daily wages but instead, work on their own account (self-employment) or are paid in piece wages that are not easy to convert into time wages in the absence of data on usual working hours. The earnings of such home-based and other workers often fall well short of even the low official minimum wage. In my own fieldwork in the textile industry in Varanasi, I found that weavers were routinely paid piece wages that translated into daily wages of around Rs. 100-150 per day (in 2010), far below the stipulated minimum wage for skilled silk weavers in Uttar Pradesh, which at that time was more than Rs. 200. The situation was even worse for women workers who were paid as low as Rs. 25 to 30 per day for embroidery work. A 2010 study by the All India Democratic Women’s Association (AIDWA) in the Delhi-NCR region found that even after working for nearly seven hours a day home-based women workers managed to earn only Rs.32.54 per day. The daily minimum wage for unskilled workers in Delhi at the time was Rs.140. Abysmally low wages for women are often justified on grounds that they are “supplementary earners” or that they work in “spare time". Both these are questionable, not to say sexist, assumptions. How then, can we ensure that at least the basic minimum standard of living that the government stipulates should accrue to every Indian family does, in fact, accrue to them? One way to do this is to end contract work as well as the practice of allowing informal workers in formal establishments, including public sector ones. This will make wage implementation easier. This was indeed one of the demands of the general strike as well. In the post-reform period, employment of contract workers has become a prominent feature of the way private sector firms and even public ones operate to reduce labour costs and increase flexibility. The result has been a rapid rise in contract labour and almost no increase in regular formal jobs that come with some measure of job security and other benefits. But what about the vast numbers who work in the informal economy beyond informal employment in formal establishments? As mentioned above, the millions of workers in India’s small workshops, shops, and homes who produce a large variety of goods and services from food, metalware, and textiles to mobile and auto repair earn wages far below the official minimum. Most of these businesses are tiny, employing fewer than 10 workers each. Won’t forcing such businesses to pay higher wages, closer to the official minimum wage, result in them going out of business and destroying jobs? This is indeed a possibility because many informal businesses do operate on very small margins. In such cases, a wage subsidy, where the government supplements private sector incomes up to a certain level, may be the way to go. We are familiar with various subsidies that the government gives to the industrial sector in the form of tax breaks, depreciation allowances, SEZs, price supports etc. However, thousands of crores of rupees worth of such subsidies have not been particularly effective in creating jobs as the subsidising capital, not surprisingly, incentivises capital-intensive production. Instead of subsidising capital, if we seriously believe that the official minimum wage constitutes an ethical lower bound on what a worker should earn then why not subsidise labour such that informal sector wages rise to that lower bound? Such a “wage subsidy” has recently been suggested by the well-known economist Pranab Bardhan. Unlike a capital subsidy, this will encourage job creation as opposed to merely economic growth. It will also have large effects in boosting spending in the economy at a time when weak demand has been an important constraint on economic growth. Further, it will end the dualism between the formal sector with its minimum and inflation-indexed wages, and the informal sector that enjoys no such protection. Moreover, it will end it by moving the informal up to the level of the formal instead of bringing the formal down by informalising it, as has been the practice thus far in the post-reform period.

Minimum wage: wage subsidy is the solution to income disparity

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Zee News Rajasthan

Editor

Amit Basole

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