Lecture 09

COMPENSATION

LESSON 9: INTRODUCTION TO MINIMUM, FAIR AND LIVING WAGE

• To know the concept of Statutory, Bare or Basic Minimum

Wage • To understand Fair Wage

The question of determining the minimum wage is a very difficult one for more than one reason. Conditions vary from place to place, industry to industry and from worker to worker. The standard of living cannot be determined accurately.

• To understand Living Wage

What then should be the quantum of the minimum wage?

• The Need-Based Minimum Wage

What is the size of the family it should support?

The term wages may be used to describe one of the several concepts, including wage rates, straight time average hourly earnings, gross average hourly earnings, weekly earnings; weekly take home pay and annual earnings. Money paid to the workers is considered as wages. The wage is the payment made to the workers for placing their skill and energy at the disposal of the employer. The method of use of that skill and energy being at the employer’s discretion and amount to the payment being in accordance with terms stipulated in an contract of service. Various terms that are currently in use in the payment system are wages, pay, compensation and earnings.

Who should decide these questions?

Statutory Minimum Wage

There is a distinction between a bare subsistence or minimum wage and a statutory minimum wage. The former is a wage which must be sufficient to cover the bare physical needs of a worker and his family if an industry is unable to pay to its worker at east a bare minimum wage it has the right to exist. The statutory minimum wage is however is the minimum wage which is prescribed by the statue and it may be higher than the bare subsistence or minimum wage. The courts and tribunals laid emphasis upon fulfillment of needs of an industrial labour irrespective of the capacity of the industry or of his employer to pay. For instance in Hindustan Times Limited Vs. their workmen, the Supreme court held that at the bottom of the ladder there is the minimum basic wage which the employer of any industrial labour must pay in order to be allowed to continue an industry.

It is the wage determined according to the procedure prescribed by the relevant provisions of the Minimum Wages Act, 1948. Once the rates of such wages are fixed, it is the obligation of the employer to pay them, regardless of his ability to pay. Such wages are required to be fixed in certain employments where “sweated” labour is prevalent, or where there is a great chance of exploitation of labour.

Bare or Basic Minimum Wage It is the wage, which is to be fixed in accordance with the awards and judicial pronouncements of Industrial Tribunals, National Tribunals and Labour Courts. They are obligatory on the employers. Minimum wage, and fair wage and living wage are the terms used by The Report of the Committee on Fair Wages, set up by the Government in 1948 to determine the principles on which fair wages should be based and to suggest how these principles should be applied. According to this Committee, the minimum wage should represent the lower limit of a fair wage. The next higher level is the fair wage, and the highest level of the fair wage is the living wage.

A Minimum Wage It has been defined by the Committee as “the wage, which must provide not only for the bare sustenance of life, but for the preservation of the efficiency of the worker. For this purpose, the minimum wage must provide for some measure of education, medical requirements and amenities.” In other words, a minimum wage should provide for the sustenance of the worker’s family, for his efficiency, for the education of his family, for their medical care and for some amenities.

These issues are very difficult to decide. Moreover, since the cost of living varies with the price level, it follows that this index should be periodically reviewed and modified. However, the principles for determining minimum wages were evolved by the Government and have been incorporated in the Minimum Wages Act, 1948, the important principle being that minimum wages should provide not only for the bare sustenance of life but also for the preservation of the efficiency of the workers by way of education, medical care and other amenities.

Living Wage This wage was recommended by the Committee as a fair wage and as ultimate goal in a wage policy. It defined a Living Wage as “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.” In other words, a living wage was to provide for a standard of living that would ensure good health for the worker, and his family as well as a measure of decency, comfort~ education for his children, and protection against misfortunes. This obviously implied a high level of living. Such a wage was so determined by keeping in view the national income, and the capacity to pay of an industry. The Committee was of the opinion that although the provision of a living

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MANAGEMENT

Learning Objectives

COMPENSATION

wage should be the ultimate goal, the present level of national income did not permit of the payment of a living wage on the basis of the standards prevalent in more advanced countries.

MANAGEMENT

The goal of a living wage was to be achieved in three stages. In the first stage, the wage to be paid to the entire working class was to be established and stabilized. In the second stage, fair wages were to be established in the community-cum-industry. In the third stage, the working class was to be paid the living wage. The living wage may be somewhere between the lowest level of the minimum wage and the highest limit of the living wage, depending upon the bargaining power of labour, the capacity of the industry to pay, the level of the national income, the general effect of the wage rise on neighboring industries, the productivity of labour, the place of industry in the economy of the country, and the prevailing rates of wages in the same or similar occupations in neighboring localities.

Fair Wage According to the Committee on Fair Wages, “it 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 set by the “capacity of the industry to pay.” The committee envisages that while the lower limit of the fair wage must obviously be the minimum wage, the upper limit is equally set by what may broadly be called the capacity of the industry to pay. This will depend not only on the present economic position of the industry but on its future prospects.

The Need-Based Minimum Wage The Indian Labour Conference, at its 15th session held in July 1957, suggested that minimum, wage fixation should be needbased, and should meet the minimum needs of an industrial worker. For the calculation of the minimum wage, the Conference accepted the following norms and recommended that they should guide all wage-fixing authorities, including the Minimum Wage Committee, Wage-Boards, and adjudicators: (i) The standard working class family should be taken to consist of 3 consumption units for the earner; the earnings of women, children and adolescents should be disregarded; (ii) The minimum food requirements should be calculated on the basis of the net intake of 2,700 calories, as recommended by Dr. Akroyd, for an average Indian adult of moderate activity. (iii)The clothing requirements should be estimated at a per capita consumption of 18 yards per annum, which would mean, for an average worker’s family of four, a total of 72 yards; (iv)In respect of housing, the norms should be the minimum rent charged by the Government in any area for houses provided under the Subsidized Housing Scheme followincome groups; and (v) Fuel, lighting and other miscellaneous items of expenditure should constitute 20 per cent of the total minimum wage.

(b)The prevailing rates of wages in the same or neighboring localities;

The need based minimum wage is also a level of fair wage and represents a wage higher than the minimum obtaining at present in many industries, though it is only in the lower reaches of the fair wage. We therefore hold that in fixing the need based minimum, the capacity to pay will have to be taken in to account.

(c) The level of the national income and its distribution; and

Money and Real Wages

(d) The place of industry in the economy of the country. The committee observed that it was not possible to assign any definite weights to the work factors in the actual calculation of the fair wage and that the wage fixation machinery should relate a fair wage to a fair load of work and a needs of a standard family consisting of three consumption units inclusive of the earners. In a specified region the capacity of the particular industry should be taken in to account to determine the capacity to pay which in turn could be ascertain by taking a fair cross section of the industry of the region. It was recognized that the present level of the National income does not permit the payment of a living wage on standards prevalent in more advanced countries. It also observed that at almost any level of the national income there should be a certain level of minimum wages which society can afford; what it can not afford are minimum wages fixed at a level which will reduce employment itself and there by diminish the national income.

Wages earned by employees are normally expressed in terms of money. There are two aspects of wages. One is expressed by the term money wage while the other by real wage. Money wages give to the workers command over good and services. The actual goods and services for which wages can be exchanged constitute their real value. For this reason arise or fall in nominal wages does not necessarily mean a corresponding increase or decrease in real wages. In short money wages can be expressed by amount in terms of currency while the real wages refer to the goods and services that an worker can buy with these wages. Changes in money wages can most appropriately be compared with changes in the average price of a “ market basket “ of goods and services typically purchased by wage earners. Real wages are calculated by relating changes in money wages to changes in the consumer price index. Real wages in contrast to money wages depend on production.. It provides the real test as to whether or not the worker is improving his economic wells being. It also serves as a index for measuring changes in the economic welfare of workers over long period of time.

Between these two limits, the actual wages should depend on considerations of such factors as: (a) The productivity of labour;

Fair wage is something above the minimum wage which may roughly be said to approximate to the need based minimum in the sense of a wage which is adequate to cover the normal need of the average employee regarded as a human being in a civilized society.

Assignments 1. What are the different types of wages?

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COMPENSATION

2. What is the difference between minimum wage, living wage and fair wage? 3. What do you understand by the term need-based minimum wage and explain the importance of it in compensation management?

MANAGEMENT

4. Identify an organization, study it’s compensation package and find out the kind of wage level offered by it to it’s employees.

Case Study Sweetwater Match Robin Welch, a computer programmer at the sweet maker company’s first annual mixed –doubles tennis tournament. He and his lady friend , Gloria kovac, who works as an accountant in the company ‘s finance department, have become accomplished tennis player . They felt that they have a chance to win it all. Because of the growing interest in tennis by a large proportion of the firm’s employees and their increased productivity at work’ the company arranged the tournament to be played on Friday. This was declared as tennis holiday. By the company founder and the president Robert sweet water. Gloria and robin advanced to the tournament finals. Leading in the third and decisive set’ robin tripped going back to play an opponent’s lab shot. He twisted his ankle badly. Despite this injury ‘ robin and Gloria went on to win the game and the tournament. However, the ankle became worse and he was confined to bed. X-rays showed a hairline fracture. Robin had a to miss four days of work for medical attention. Company sick leave policy provides for only two days per month. Under state law, workers compensation provides payments if the worker is “ functioning within the scope of employment”. Problem

If Robin files for workers compensation, what are the points for and against allowing his claim? Are there any alternative possibilities for compensation?

Notes

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