Concepts of Minimum Wage, Fair Wage and Living Wage

According to economic theory, wages are defined broadly as any  economic compensation paid by the employer to his laborers under some  contract for the services rendered by them. In its actual sense which is prevalent  in the practice, wages are paid to workers which include basic wages and other  allowances which are linked with the wages like dearness allowances, etc.  Traditionally, in the absence of any bargaining power possessed by laborers,  they did not have any say in the determination of wages paid to them.

In the Indian context, soon after the  independence, Government of India set up a Committee on Fair Wages in 1948  which has defined various concepts of wages which govern the wage structure in  the country specially in those sectors which can be termed as underpaid and  where workers do not have bargaining power through unions. These concepts  are: minimum wage, living wage, and fair wage. Later, the concept of need-based  minimum wage was added. Let us have a brief look at these concepts.

Minimum Wage

A minimum wage is one which has to be paid by an employer to his  workers irrespective of his ability to pay. According to the above committee,

“Minimum wage is the wage which must provide not only for the bare  sustenance of life, but for the preservation of the efficiency of the  workers. For this purpose, minimum wage must provide some measure of  education, medical requirements and amenities. “

Subsequent to the committee’s report, Government enacted legal  provisions regarding minimum wages under the Minimum Wages Act. 1948.  This Act does not define the concept of minimum wages but empowers the  Central Government as well as State Governments to fix minimum wages from  time to time. Wherever this Act applies, the payment of minimum wages is  mandatory. In 1957, Indian Labour Conference elaborated the concept of  fixation of minimum wars which were termed as need-based minimum wages.  For the calculation of wages, the Conference suggested the following  guidelines:

  1. The standard working class family should be taken to consist of three  consumption units for the earner; the earnings of women, children and  adolescents should be disregarded.
  2. The minimum food requirements should be calculated on the basis of the  net intake of 2.700 calories per adult.
  3. The clothing requirements should be estimated at a per capita consumption  of 18 yards per annum per person.
  4. In respect of housing. the norms should be the minimum rent charged by the  Government in any area for houses provided under subsidized housing  scheme for low-income groups.
  5. Fuel, lighting and other miscellaneous items of expenditure should  constitute 20 per cent of the total minimum wage.

Fair Wage

The  concept of fair wage  is linked with the capacity of the industry to  pay. The Committee has defined fair wage as follows:

“Fair wage is the wage which is above the minimum wage but below the  living wage. The lower limit of the fair wage is obviously the minimum  wage: the upper limit is to be set by the capacity of the industry to pay. “

Thus, fair wage depends on different variables affecting wage  determination. Such factors are labour productivity prevailing wage rates, the  level of national income and its distribution and the capacity of industry to pay.  At present, the concept of fair wages is followed by the most business  organisations.

Living Wage

Along with the minimum wage the Committee on Fair Wages has given  the concept of living wage which has been defined as follows:

“A living wage is one which should enable the earner to provide for himself and  his family not only the bare essentials of food, clothing and shelter but a  measure of frugal comfort including education for his children, protection  against ill-health, requirements of essential social needs and a measure of  insurance against the more important misfortunes including old age. “

Living wage is more than the concept of minimum wage. Such a wage is  determined keeping in view the national income and paying capacity of  industrial sector. The Committee also observed that since the national income  did not support the payment of living wage. It should be implemented in three  phases. In the initial stage the wages to be paid to the entire working class were  to be established and stabilized. In the second phase fair wages were to be  established in the community and industry. In the final phase the working class  was to be paid the living wage.

Credit:    Compensation Management-CU

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