Mint Explainer: How workers will benefit from living wages

India ushered in the concept of minimum wages soon after gaining independence, becoming one of the first developing countries to do so. It enacted the Minimum Wage Act, 1948 empowering the central and state governments to notify minimum wages that should be paid for different categories of workers to curb exploitation in low-paid informal jobs. Employment is in the concurrent list, so wages for some jobs are notified by the central government and for others by state governments under this Act.

Mint explains why the adoption of the living wage system will be pro-workers.

 

What is a living wage?

According to the ILO, a living wage is the wage level that is necessary to afford a decent standard of life for workers and their families. It takes into account the economic circumstances of a country and is calculated for the work performed during the normal hours of work. It is usually higher than the minimum wage set by governments because it considers the cost of food, housing, health, education, transportation, clothing, other essential goods and services and provision for unforeseen events. 

The determination of living wages also considers the average size of a household and the number of earning members. However, there cannot be a one-size-fits-all solution to the wage-setting process, the ILO has cautioned.

The setting of minimum wages in India does not take such a holistic approach though the consumer price index which is a measure of the cost of living is considered. The minimum wages are notified by the central and state governments and may undergo annual revision. The ILO estimates that India notifies about 2,000 minimum wage rates across sectors of employment and workers’ skill levels. About 50 of these wage rates are notified by the central government and the rest by states.

 

How can living wages benefit workers?

As living wages are meant to ensure a basic and decent life for a worker’s family, they tend to be much higher than the notified minimum wages. Just as minimum wages for the same work vary from state to state, living wages too will vary from state to state and even district to district. This can be seen in the reports of the advocacy group Global Living Wage Coalition (GLWC) which ran a study in six districts across four states over multiple years.

Consider, for instance, the coalition’s reports on Madhya Pradesh. The coalition investigated what should be living wages in the rural areas of Chhindwara in south MP and in Ratlam which is in the western part. The study considered the family size for both districts as 4.5 members with 1.67 workers. For Chhindwara, the GLWC estimated the monthly cost of living at ₹20,799 in 2023 and for Ratlam at ₹22,105. After considering the average number of workers in a household, the study estimated the appropriate living wage for a worker in Chhindwara at ₹13,279 per month and in Ratlam at ₹14,114. This is higher than the minimum wage of less ₹10,000 for unskilled workers in the state.

In Tamil Nadu, the GLWC ran their study in the rural areas in Nilgiris and the urban areas of Tirupur, known for its hosiery manufacturing units. The family size for both districts was estimated at four while the average number of workers in Nilgiris was taken as 1.73 and for Tirupur as 1.58. 

The study estimated the monthly cost of living in Tirupur at ₹27,355, which meant that workers required ₹18,482 as living wages. In contrast, the cost of living and the living wages for Niligiris were far less at ₹22,548 and ₹13,914, respectively.

In all four instances, workers would earn more if they were paid living wages rather than minimum wages, and that in turn would increase the household’s total income and increase their spending power.

However, employers will see their wage bills rise significantly with the implementation of living wages.  

 

What are the challenges to estimating living wages?

Estimating appropriate living wages for a set of workers will require an understanding of their cost of living in the place of residence, which includes gathering insights into the basket of goods and services consumed by a worker’s household, prices paid locally for these goods and services and the level of deprivation they might be suffering for want of adequate income. 

To a large extent, data collected for Household Consumption Expenditure Surveys may provide that insight. The National Family Health Survey would also provide some inputs. 

The ILO governing body report after its March meeting in Geneva suggested that living wage methodologies should follow a number of principles such as estimation of the needs of workers and their families through evidence-based methodologies, consultation with representative employers’ and workers’ organizations, regular adjustments to consider changes in the cost of living and the patterns of consumption, and promotion of gender equality and non-discrimination.

A gender-neutral living wage will benefit women workers who are currently paid much less for the same work done by men. Many employers might resist this change.