Dr Ashwani Mahajan
Recently, few State Governments, including Delhi and Odisha decided to increase minimum wages in their respective states. Many economist have expressed their unhappiness over this decision, stating that this is not pertinent policy, because with this, business will start adopting labour saving technologies, which would ultimately impact the labour, both existing as well as future. Therefore, to ensure gainful employment to all, increase in minimum wages is no prudent policy. However, the supporters of minimum wages believe that this would ensure larger share to workers, which is key to inclusive growth. If we look at the researches in the field, we find that economists are divided on this subject, whether hike in minimum wages would really impact employment. Some studies show that increase in minimum wages would not impact employment in any significant way, while some other studies say that employment actually goes down with increase in minimum wages. Generally, there is no consensus amongst the economists supported by sound empirical research.
Going by general economic theory, some economists start believing that with increase in wages demand for labour will go down and therefore employment generation will also go down. However, this belief is countered by other economists to say that those firms, who give higher wages, attract more efficient workers. Therefore, giving higher wages is beneficial for the firms also.
Globalisation and Declining Bargaining Power of Workers
If we look at the pre globalisation era, we find that labour had considerable bargaining power and workers used to get remunerative wages by sheer presence of trade unions. However, with globalisation, bargaining power of labour unions has eroded significantly. Today, normal worker is finding himself to be helpless and employer companies are exploiting workers realizing their helplessness. Due to technological development, employment opportunities are getting created in some selected sectors including BPOs, Software, Computer Hardware and Electronic. These are the very sectors where labour unions either don’t exist or are generally ineffective. Apart from this, in case of semi-skilled or unskilled jobs like guards, housekeeping services, drivers etc. companies do not give direct employment and prefer giving jobs through agencies. These agencies not only exploit workers, they lack minimum basic facilities.
In the era of libralisation biggest loss has happened to workers (both wage earners and salaried). According to the Annual Survey of Industries, the share of workers in total value added has come down from 78 percent in 1990-91 to only 50 percent by the year 2014-15. Loss to workers is gain for the capital, whose share has gone up from 19 percent to 47 percent. Under these circumstances if there is a small increase in minimum wages, why some ‘economists’ are so much disturbed, is beyond comprehension. Some economists also say that if giving higher wages to the workers is in the interest of the firms, then why compelling them for giving minimum wages? But this argument is pathetic in light of the fact stated above that firms are actually not giving remunerative wages to the workers. Renowned economist Thomas Picketty’s research shows that in India during 34 years between 1980 and 2014, 66 percent of the benefits of GDP growth have been cornered by top 10 percent population and out of this 29 percent by top one percent people. Under these circumstances when scenario is predominately tilted against the workers and capitalists are able to exploit them either because of lack of sufficient employment opportunities or due to absence of bargaining power of workers, ensuring minimum wages by the Government in the only solution.
Economists who opposed minimum wages argue that if the aim of this hike in minimum wages is to supplement the income of the poor, the Government should rather opt for direct cash transfer to the poor, and not compel firms for the same. Given the fact that Government is having huge paucity of resources, this argument is also not feasible. It is true that it is imperative to increase the income of the poor; however, for labour hired by the capitalists, burden cannot be and should not be borne by the Government, while keeping the benefits of the capitalists intact. We find that in the last nearly three decades unemployment has continued to grow in the country and the world due to policy of open import in the era of globalisation, dominated by large corporates including multinational corporations, enjoying several benefits from the Government. For instance Government of India has been giving huge concessions to the corporate and businesses and thereby losing revenue on that account as well. As per the last ‘Statement of the Revenue Forgone’ (published in 2015-16 budget document, which Finance Ministry stopped publishing in the later years’ budget) Central Government budget, happened to be rupees 5.5 lakh crores, for the year 2014-15. In the last several years corporate tax rate, including surcharge was around 33 percent, whereas the actual tax paid by the companies has been 22 to 23 percent, because of these concessions. Corporate world would take all these advantages, but when it comes to payment of remunerative wages and salaries, they become extremely miser; and the argument is given that increase in wages would incentivise the employers to go for automation and thereby labour would get unemployed. In fact because of unwillingness of the employers to give remunerative wages, the only way to improve the conditions of the workers is hike in the minimum wages by the Government.
Opponents of increasing minimum wages also argue that due to increase in wages, companies can reduce their employment by adopting measures such as mechanization, robotization and artificial intelligence. Therefore, youths may have difficulty in getting employment. It will be a big setback for laborers already facing unemployment. But if this happens, the Governments will have to intervene. By keeping a large number of workers out of employment or keeping their wages low, the rich capitalist class would also not be safe. Therefore, Governments should try to promote appropriate technology. New technology should be welcomed, but in the name of technology, the majority of workers cannot be denied the right to live.
We have to understand that as long as the inequalities of income and wealth exist in the country, growth and industrial development will also not sustain. If a large number of people do not have income, then where will the demand for goods come from? Therefore, industrial development also cannot sustain by increasing the demand for luxuries for a few rich only. It is therefore necessary that the incomes of the farmers and the laborers increased and that is crucial for sustainable economic growth.
(The author is Associate Professor, PGDAV College, University of Delhi)
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