MACROECONOMICS ASSIGNMENT

2
WAGE DETERMINATION IN INDIA

12/3/2010
Indian Institute of Management , Kozhikode
Methods of Wage Determination in India

Process of wage determination: Determination of wages and salary is one

of the most important phases of an employee employer relationship. For
any organization it is really important to ensure that each employee is
properly compensated for the services rendered by him/her.

The basic wage determination model of any organization can be

summarized by the diagram embedded below.

Administration
Job Description
Wage
Job
Minimum
Performance
Wage
Job
Wage
Performance
& Wage
Specification
Evaluation
Structure
Survey
Structure
Payment
Analysis
Appraisal
LawNorms

Submitted By:

Amit Manohar Sansi

PGP 14 /193

Section D
Collective Bargaining:
It relates to arrangements in which wage rates are set by
negotiations between parties. In modern democratic society wages
are determined by collective bargaining rather than individual
bargaining.
In India collective bargaining went through 3 phases

From the legal point of view there is no law at national level for
recognition of trade unions, however some states like Maharashtra have
legal provisions for trade union recognition. In some states like Orissa,
West Bengal and Andhra Pradesh, unions are recognised as bargaining
agents through secret ballots.

Under section 2(p) of the Industrial Disputes Act, 1947 collective

agreements can be reached with or without the involvement of the
conciliation machinery established by legislation. While settlements
reached in conciliation are binding on all parties, settlements arrived at,
otherwise than in the course of conciliation proceedings are binding only
on parties to the agreement. It is not binding on workmen who did not
sign the agreement or did not authorise any other workman to sign on his
behalf.

However in unorganised sector collective bargain is not very popular, in

many cases collective bargain in unorganised sector has led to fixation of
wages lower than minimum wages. Here government, labour laws are
expected to play an important role.

Industrial Wage Boards

It consisted of equal representation from employees and workers and an
independent Chairman. Accordingly, Wage Boards were set up for the
following sectors: cotton textile industry, jute, plantations, mines,
engineering, iron and steel, chemicals, sugar, cement, railways, posts and
telegraphs, ports and docks etc.
They determined the wages and other remuneration to be given to the
workers in industries, where wage boards are formed.

Wage boards in India are of two types:

• Statutory wage board

Statutory wage board means a body set up by law or with legal authority
to establish minimum wages and other standards of employment which
are then legally enforceable in particular trade or industry to which
board’s decision relate.

• Tripartite wage board

Tripartite wage board means a voluntary negotiating body set up by

discussions between organized employers, workers and govt. to regulate
wages, working hours and related conditions of employment

For quite some time, these Wage Boards determined the wages and other
remuneration to be given to the workers in these industries. Thus wage
bargaining mostly took place at the industry level, and through
Government controlled wage boards. Since there were not much regional
variations, this system worked well for quite some time. However in mid-
70’s the Indian economy suffered 2 major Oil Crisis? This period saw
independent plant based unions and since then the wage boards have
taken a back seat.

Pay Commissions:

• Till now 5 commissions have been appointed

• State Governments also appoint commissions for state government
employees.
• Central and State pay commission reports considered a bench mark
for organized sector.

Some highlights of Fifth pay commission:

The Fifth Pay Commission appointed by Government of India, discussed

the issue of fixing maximum pay for Government servants. The
Commission had analysed the maximum and minimum disparity ratios of
Government servants.
Their conclusions were:
1) During the period 1948-1996, the minimum salary of the lowest
Government employee rose from Rs.55 to Rs.2, 060.
2) During the same period, the pre-tax maximum salary rose from Rs.
3,000 to Rs. 16,580, while the post-tax salary rose from Rs. 2,263 to
Rs. 12,615.
3) The post-tax disparity ratio came down even more drastically from
41.0 (1948) to 6.1 (1996). The post-tax ratios were naturally lower
than the pre-tax ratios because of progressive rates of taxation.
It also compared disparity ratios of various countries.

International Disparity ratios, 1995 [www.labour.nic.in]

Malaysia 3.0 Sweden 4.0

France 6.6 Indonesia 6.8

Australia 7.7 China 8.0

Thailand 9.0 Honk Kong 40.0

Unorganised sector

In unorganised sector collective bargain is not very popular, in many

cases collective bargain in unorganised sector has led to fixation of wages
lower than minimum wages. Here government, labour laws are expected
to play an important role.
Various important acts are:

Article 39
There is equal pay for equal work for both men and women;

Article 43

Living wage, etc., for workers `The State shall endeavor to secure, by
suitable legislation or economic organization or in any other way, to all
workers, agricultural, industrial or otherwise, work, a living wage,
conditions of work ensuring a decent standard of life and full enjoyment of
leisure and social and cultural opportunities and, in particular, the State
shall endeavor to promote cottage industries on an individual or co-
operative basis in rural areas.’
Payment of Wages Act 1936
• Introduced to ensure that wages are not withheld, no wrongful
deductions made and payment is made in such manner that wage
earner will benefit. (Objective was to reduce effects of payment in
kind for work done).

• Act has limitations – agriculture not covered

Equal Remuneration Act 1976

• Payment of equal wages for men and women workers for same work
or work of same nature.

• However discrimination exists in terms of definition as: difficult work

(men) and easy work (work) in same workplace
References:
www.labour.nic.in , www.wikipedia.com , www.legalindia.in, www.scribd.com ,
other open domain documents [ Google]