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Tag: Minimum Wage

  • Minimum wage bill: unemployment tax on poor

    Minimum wage bill: unemployment tax on poor

    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

    Image credits:
    http://indianexpress.com/article/cities/delhi/delhi-govt-introduces-bill-to-revise-minimum-wage-of-workers/

  • How maids will be unmaid in Rajasthan

    Rajasthan passed a new reform bringing domestic maids under the purview of state laws. The question is — when will the Indian state learn to stop passing laws that it cannot enforce and which can only increase harassment by inspectors? The below picture gives the summary of the reform as published in the Times of India.

    Domestic workers and labour regulation in Rajasthan
    Contextual replacement image. The original embedded media could not be recovered; this image does not reproduce the original dataset or copyrighted frame.

    Why this law is another addition to the junk that we already have?

    1. From the implementation perspective:

    • Large number of domestic maids and households. How is the state going to inspect everyone?
    • Courts are already overburdened. Now we want to burden them more by taking them away from real decision making.
    • Most maids are paid in cash and work without a written contract. In such a scenario, how will anyone prosecute anybody except engaging in “he said/she said” style arguments?
    • The government cannot even ensure implementation of existing labour laws — how can it add to the already existing laundry list?

    2. From the economic perspective:

    • Why can’t it come under existing minimum wage? When will the fetish for a new law for every new situation end?
    • No tax gain for the government.
    • The only gainers would be state inspectors who can harass the middle class for bribes citing some imaginative violation.
    • What about domestic workers who want to work more than eight hours out of their own free will?

    Given its law enforcement capability, the Indian state should focus on more constructive law making and stop poking its nose in every small business activity. Domestic maids are free to choose their employers, which ensures that there is enough mobility and competitive wages determined by local conditions. The government would have done much better by spending the implementation cost of this law on educating maids about using financial services like savings and pensions. In the long run, financial education would have paid back much more than creating further hassles for employment.