Recently, few State Governments, including Delhi and Odisha decided to increase minimum wages in their respective states. Many economists have expressed their unhappiness over this decision, stating that this is not pertinent policy, because, with this, business will start adopting labour-saving technologies, which would ultimately impact the labour, both existing as well as future. Therefore, to ensure gainful employment to all, increase in minimum wages is no prudent policy. However, the supporters of minimum wages believe that this would ensure larger share to workers, which is key to inclusive growth. If we look at the researches in the field, we find that economists are divided on this subject, whether the hike in minimum wages would really impact employment. Some studies show that an increase in minimum wages would not impact employment in any significant way, while some other studies say that employment actually goes down with the increase in minimum wages. Generally, there is no consensus amongst the economists supported by sound empirical research.
Going by general economic theory, some economists start believing that with the increase in wages demand labour will go down and therefore employment generation will also go down. However, this belief is countered by other economists to say that those firms, who give higher wages, attract more efficient workers. Therefore, giving higher wages is beneficial for the firms also.
Globalisation and Declining Bargaining Power of Workers
If we look at the pre-globalisation era, we find that labour had considerable bargaining power and workers used to get remunerative wages by the sheer presence of trade unions. However, with globalisation, the bargaining power of labour unions has eroded significantly. Today, the normal worker is finding himself to be helpless and employer companies are exploiting workers realizing their helplessness. Due to technological development, employment opportunities are getting created in some selected sectors including BPOs, Software, Computer Hardware and Electronic. These are the very sectors where labour unions either don’t exist or are generally ineffective. Apart from this, in the case of semi-skilled or unskilled jobs like guards, housekeeping services, drivers etc. companies do not give direct employment and prefer giving jobs through agencies. These agencies not only exploit workers, they lack minimum basic facilities.
In the era of liberalisation biggest loss has happened to workers (both wage earners and salaried). According to the Annual Survey of Industries, the share of workers in total value added has come down from 78 per cent in 1990-91 to only 50 per cent by the year 2014-15. The loss to workers is gain for the capital, whose share has gone up from 19 per cent to 47 per cent. Under these circumstances, if there is a small increase in minimum wages, why some ‘economists’ are so much disturbed, is beyond comprehension.