Why is it in the News?

India is reportedly poised to replace the minimum wage with the living wage system, with the transition anticipated to occur by next year.

Context:

• India is reportedly considering shifting from the minimum wage to the living wage by 2025.
• India has approached the International Labour Organization (ILO) to help it chalk out a framework to assess and operationalize the living wages.
• India has asked the ILO to help it in “capacity building, systemic collection of data and evidence of the positive economic outcomes resulting from the implementation of living wages”.
  • Earlier in March, the United Nations agency forged an agreement on the living wage, which was also endorsed by its governing body.
• India, a founding member of the ILO and a permanent member of its governing body since 1922, passed the Code on Wages in 2019.

What is the Current Wage System in India?

• National Floor Level Minimum Wage (NFLMW): Established under the Code on Wages 2019, the NFLMW is determined by the government, requiring establishments to set minimum wages not below this level.
• Flexibility in Minimum Wage Standards: Section 5 of the Code on Wages 2019 prohibits employers from setting wages below the NFLMW, though states have the discretion to revise minimum wage rates as needed.
• Presently, the National Floor Wage stands at Rs 178 per day.

What’s a Living Wage?

• The International Labour Organization (ILO) defines the living wage as the level of remuneration “necessary to afford a decent standard of living for workers and their families, taking into account the country's circumstances and calculated for the work performed during the normal hours of work”.
• This decent standard of living includes being able to afford food, water, housing, education, healthcare, transportation, clothing, and other basic needs including a provision for contingencies, says the Global Living Wage Coalition.
• The goal of a living wage is to ensure the employees get an income enough for satisfactory living standards as well as reduce poverty.

What is Minimum Wage?

• Minimum wage refers to the legally mandated lowest level of compensation that employers must pay employees for their work over a specified period.
• While minimum wage endeavors to prevent low pay, living wage extends beyond by ensuring income is adequate to meet necessities like food, shelter, clothing, and other essentials, addressing the risk of workers falling below the poverty line despite earning minimum wages.
• In India, minimum wage calculation factors in variables such as the state of employment, the skill level of the worker, the nature of their job, and other pertinent factors.

Living Wage vs Minimum Wage:

• Definition: A living wage is the income required to meet basic needs and maintain a decent standard of living, while minimum wage is the lowest legally mandated compensation for workers.
• Purpose: A living wage seeks to address the risk of workers falling below the poverty line, while minimum wage aims to prevent low pay.
• Mandatory vs Voluntary: Minimum wages are legally required, whereas living wages are voluntary unless the government sets the minimum wage at the living wage level.
• Calculation: Living wages consider basic necessities and a decent standard of living, while minimum wages factor in variables like skill level, state of employment, and job nature.

Pros and Cons of Living Wages:

• Living wage is a divisive issue. Proponents of the living wage say people get paid more, leading to a rise in employee satisfaction.
• A boost in employee morale is likely to result in higher productivity.
• It also saves recruitment and training costs for companies as employee turnover falls.
• On the other hand, critics of the concept say companies may cut back on hiring if forced to pay increased wages, creating more job losses.
• Opponents also argue that imposing a living wage means creating a wage floor, which would hurt the economy by impacting businesses, especially those that cannot pay hiked salaries.

How Does Living Wage Benefit India?

• India has over 500 million (50-crore) workers, of which 90 percent are in the unorganized sector, noted ET.
• The national floor level minimum wage (NFLMW) – an amount below which no state government can fix the minimum wage – was Rs 178 per day or more depending on the location in 2023.
  • This was set at Rs 176 per day in 2017 and has not been changed since then.
• Currently, some states pay workers in the unorganized sector even below the NFLMW.
• The Code on Wages, 2019 was passed by Parliament states that the minimum wage cannot be fixed below the national wage floor.
• However, this code, which is binding on all states, is yet to be implemented.
• If India replaces the minimum wages with living wages, workers are expected to earn more.
• According to the ILO, the living wage has to be calculated following its principles and wage-setting process.

Conclusion

India's pursuit of the Sustainable Development Goals by 2030 hinges on strategic shifts, such as transitioning from minimum to living wages, to uplift millions from poverty while safeguarding their welfare. This is particularly pertinent against the backdrop of escalating income inequality, highlighting the imperative for a revamped wage system. As poverty rates decline yet inequality persists, a more equitable approach to wages becomes paramount, underscoring India's commitment to inclusive growth and social justice.

International Labor Organization (ILO):

• The International Labor Organization (ILO) is a specialized agency of the United Nations, founded in 1919 to promote social and economic justice through the establishment of international labor standards.
• The ILO operates with a unique tripartite structure, allowing governments, employers, and workers to engage in dialogue and decision-making on labor matters.

Key Roles and Functions:

• Setting International Standards: The ILO develops and adopts international labor standards in the form of conventions and recommendations, covering areas such as freedom of association, collective bargaining, child labor, forced labor, and non-discrimination.
• Technical Assistance and Capacity Building: The organization provides support to member states in enhancing their labor administration, labor inspection, employment policies, and social protection systems.
• Monitoring and Supervision: The ILO monitors the application of international labor standards in member states, offering guidance and assistance in their implementation.
• Research and Knowledge Sharing: The organization conducts research, collects data, and disseminates information on labor-related topics, facilitating evidence-based policy-making and dialogue.
• The ILO plays a critical role in promoting decent work, social justice, and labor rights worldwide, fostering cooperation among its 187 member states to address labor-related challenges and achieve sustainable development.
• The ILO headquarters are located in Geneva (Switzerland).