It is unfortunate that in India important news on economics are usually hidden deep inside the regular newspapers and crucial laws are passed without much debate. One of the recent such news was the decision of Modi government to increase the minimum wage for contract workers to Rs. 10,000.
The article criticizes the government for not clearly explaining how the Rs 10,000 figure was determined and for invoking the Supreme Court as justification for economic policy.
The case against minimum wages goes as follows
1) Minimum wages reduce employment among unskilled workers
2) Therefore minimum wages hurt people whom it is actually supposed to help
In a surplus labour economy like India, when government imposes laws like minimum wage it makes firms less competitive by increasing their wage bill.
The article compares apparel wages in India and Bangladesh, arguing that higher labour costs have contributed to Bangladesh’s stronger export performance.
It argues that minimum wage laws help current job holders but reduce entry-level employment and discourage the formation of new firms.
The article cites research by Maloney and Mendez on Colombia, claiming that employment declined most sharply among workers earning below the minimum wage, while higher-paid workers were also affected when firms closed.
Given this evidence, the article argues that India should avoid imposing a uniform wage floor that may push workers into unemployment or into the informal sector.
Also read: Make in India: How to make it work
References:
Measuring the Impact of Minimum Wages
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http://indianexpress.com/article/cities/delhi/delhi-govt-introduces-bill-to-revise-minimum-wage-of-workers/