A Bad Mistake, India Moots Raising National Minimum Wage – It’s Too High Already


It’s not surprising that this is happening, India mooting a rise in the national minimum wage. There is, after all, an election in the offing. Just when we would expect crowd pleasing but bad ideas to surface. The problem here is that the Indian minimum wage is already too high. Increasing something that’s too high is not sensible policy. But, you know, elections, politics:

The Narendra Modi government-appointed expert panel has suggested the minimum wage at Rs 375 per day, higher than the current of Rs 321 for farm or unskilled workers and Rs 371 for semi-skilled workers. The panel has adopted a new methodology that eliminates variation in wages based on sector, skills and location.

Sure, the centre can declare that labour has this certain value and even threaten to jail anyone who pays less, or offers their labour for less. That doesn’t mean that such a minimum wage is actually going to stick of course:

The report was made public on Friday. If implemented, it will put in place a national floor price and states won’t be able to pay less than that. However, they can pay more. States currently decide on minimum wages after taking into account several factors, including the sector of work. A national floor price has been the demand for years from workers and workers unions.

Sure, we can declare a floor price and that will be valid wherever the government’s writ runs. Which, in the Indian economy, isn’t all that far.

The national minimum wage could be set at Rs 9,750 per month, almost double the current level, along with an additional Rs 55 per day of average HRA for urban workers, an expert committee has submitted. The January report, which went public for suggestions on Thursday, has also suggested an alternate plan, with a range of Rs 8,892-11,622 per month of national minimum wage for five different regions as they have diverse socio-economic and labour market situations, The Indian Express reported.

The specific details don’t matter all that much because the Indian government isn’t that powerful in economic matters.

The point being that any formal minimum wage will only apply to people in the formal economy. Depending upon who you want to believe between 80 and 90% of the Indian economy is over in the informal sector. That’s the part of the economy that doesn’t have health and safety standards, proper contracts and minimum wages. And our proof that the current minimum wage is too high is exactly that, that most of the economy isn’t in the formal sector where it applies.

In one manner raising that Indian minimum wage is an irrelevance because it affects so few people. In another it’s actively bad, as it makes it more expensive to join that formal economy, thus making it less likely. Thus it’s a bad idea either way. But you know, elections, politics.

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Jonathan Harston Recent comment authors
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Jonathan Harston
Jonathan Harston

Hold on.
“The panel has adopted a new methodology that eliminates variation in wages based on sector, skills and location.”
So, having the higher skills to do a higher skilled job doesn’t get you a higher wage? Who TF is going to bother investing their time in aquiring skills then?