This article throws light upon the twelve main determinants used for estimating industrial wages in India. The determinants are: 1. Living Wage 2. Nutritive Needs 3. Family Budget Inquiries 4. Relative Wages 5. Leap-Frogging 6. Equal Remuneration for Work of Equal Value 7. Capacity of Industry to Pay and Profits 8. Capacity of Individual Undertakings 9. Company Accounts and Public Service Accounts and Others.
Estimation of Industrial Wages
- Living Wage
- Nutritive Needs
- Family Budget Inquiries
- Relative Wages
- Equal Remuneration for Work of Equal Value
- Capacity of Industry to Pay and Profits
- Capacity of Individual Undertakings
- Company Accounts and Public Service Accounts
- Economic Growth
- Wage Adjustments on the Basis of Cost of Living and Selling Price Sliding Scales
- Wage Increments
1. Living Wage:
While there is wide agreement that workpeople should be paid adequate living wage as per definition of basic needs development strategy by ILO World Employment Conference in 1976, the difficulties for this principle is the application of regulating wages.
These difficulties relate to the following practical problems:
(a) Determination of living wage for full-time regular workers, part-time or seasonal workers.
(b) Amount for a family of average size with or without dependants of skilled and unskilled labourer.
(c) Subsistence wage, minimum wage and standard of living wage.
(d) Changing consumption pattern, habits and human needs from country to country.
2. Nutritive Needs:
Another related problem is to estimate nutritive needs of different categories of workers and then families in terms of calories under varying geographical and climatic conditions. It is difficult also to set standards for estimating cost and amount of nutritive needs.
3. Family Budget Inquiries:
Because of such theoretical deficiencies of most scientific method of determining living wage, the family budget inquiries are nowadays accepted as the most practical method of determining living wage. According to family budget enquiry methods, families of various sizes and occupations are asked to supply information regarding their balance sheet of income and expenditure.
These are compared over a time and a general average is arrived at to be applicable for determining living wage of classified occupations. But family budget inquiries method is not without practical difficulties.
The families often tend to conceal their real incomes and exaggerate the expenditure side and do not supply correct information’s as they do not always keep correct records of their expenditure as regards costs. Families sometimes feel ashamed to reveal their poverty and debt conditions.
In this respect, trade unions and other voluntary organisations which are close to workers families may conduct useful and correct family budget inquiries in cooperation with University or Government agencies. Again, family budget of workers living below subsistence level may show measurable deficiencies in the quantities and kinds of food consumed, clothing and other essentials.
This difficulty, however, can be obviated by estimating pay increases required to provide a minimum living wage and by calculating the cost of family budget surveys which are useful for the preparation of cost of living index.
4. Relative Wages:
In an expanding economy, there is a natural tendency to increase wages in a given occupation relative to other occupations where similar skills and experience are required. In an economy where there is serious unemployment the tendency, however, is reverse that is wages tend to gravitate to the lowest paid occupation.
This falling tendency, however, can be counteracted by introducing minimum wage legislation, trade union pressures and government’s wage policy in public sector as a model employer.
If mobility of labour is completely free, the payment of equal relative wages will be brought about by competition for jobs on the basis of the principle of equal remuneration for work of equal value. The strength of trade unions is also an important factor in establishing relative wages in a particular enterprise.
According to this principle, if trade unions are strong and full employment exists, the principle of equality of wages as between different occupation can lead to continuously rising wages. This process is called “leap-frogging” as a cycle of wage increases is kept in motion, each group in term moving ahead of the others.
This situation, however, is fraught with dangers of wage-induced or cost-push inflation under which wage increases lead to rising prices which again chase wages. This wage-price spiral can be checked to some extent if productivity is increased and trade unions do not indulge in such type of leap-frogging.
6. Equal Remuneration for Work of Equal Value:
Logically and from the viewpoint of social justice, this principle should govern the bases of wage fixation as between different occupations at the industry or at the plant level. But some factors like unemployment, shortages, and surpluses of required manpower, capacity of industry to pay and demand-supply conditions of labour make it difficult to apply this principle in real practice.
7. Capacity of Industry to Pay and Profits:
Fixation and payment of wages by an undertaking depend on productivity which determines capacity of industry to pay. Purchasing power of money wages cannot be raised beyond capacity of industry to pay even if trade unions and government measures are strong, except perhaps temporarily. If money wages are raised too high, this will lead to either inflation or unemployment.
If all profits, except the amounts required to cover costs of depreciation, to pay reasonable rates of interest on invested capital and to maintain reserves to meet contingencies, were divided among the workers, the sun available would usually raise their wages by only a small percentage.
For long-term prosperity and survival of industry all these are necessary, and this is true of both nationalized industries as well .as private undertakings.
Without going into complexity of definitions and calculation of profits, it may be said that there are strong economic considerations for preserving profits of a company for capital formation, depreciation cost modernisation and for distribution among shareholders.
Assuming trade unions to function within a particular politico-economic framework and with no political programme to overthrow the existing framework, there is not much which remains as residue to be paid to workers out of profit, after meeting the aforesaid essential requirements.
However, larger production and higher national income leading to higher profits may entitle unions to higher wages through collective bargaining on the basis of capacity to pay.
8. Capacity of Individual Undertakings:
For a micro-level wage policy, capacity of individual undertakings to pay assumes greater practical importance. There may be wide variations of capacity of industry and individual undertakings to pay within a country because of efficient and inefficient firms.
The problems arise out of the low and higher capacity of individual undertakings to pay. Efficient firms can pay higher and inefficient can pay only lower rates of wages.
In an advanced country, competition may lead to a standard higher rate, whereas, in India, because of severe unemployment and retarded economic growth, lower wages may be acceptable to the unemployed as most of the firms are not efficient enough to pay higher wages. This tendency of lower wages adversely affects productivity and creates a vicious circle of poverty.
It is, therefore, advisable for individual undertakings in India to pay the national minimum either through collective bargaining or government legislation, and to decide to raise wages gradually, by stages, so as to give them time to increase their efficiency and capacity to pay.
Problems of industrial sickness in this country are indirectly related to wage payment and the capacity of undertakings to pay. The major dilemma is whether to allow sick on inefficient firms to exist at all or to help them to be efficient thereby delaying the growth-period of economy.
Some prosperous firms may have the capacity to pay higher than those fixed by collective agreements, wage board on tribunal awards and obviously the workers in such cases are more productive, efficient, and well-secured with regard to welfare and fringe benefits as well. All this inevitably leads to wage-differentials with varying wage structure in Indian industries.
9. Company Accounts and Public Service Accounts:
The capacity of an undertaking to pay can be best estimated by the most informative features of company accounts in wages negotiation which are in the balance sheet and the profit and loss account.
The accounts should be analysed over a period of a few years prior to the latest returns to ensure that the figures quoted for or against wage increases represent a continuing trend. This is important, as otherwise trade unions might make the mistake of supporting a claim for improved wages by instancing high profits.
In case of public utility services, public service accounts, estimated on the basis of government revenues available through taxes and fees etc. and government expenditure on employees of public services, are useful guide to both trade unions and government as employers, for wage negotiation.
The surplus or deficit budget of government and the principle of ‘equal pay for equal work’ may pose some problems which may be solved either by political or economic consideration.
Public service accounts as indicators of expanding on underdeveloped economy, and distribution of national income as wages between private companies and public undertakings are related to difficult economic policy-making decisions. This raises the question of wage-price relation at micro level.
10. Economic Growth:
It is universally accepted today that the best way to raise wages in a country is to increase labour productivity at micro level. In India, this is a crucial issue which must be considered as an essential part of economic planning, management and technological breakthrough.
In other words, macro level rapid economic growth must be ensured as a long term objective. But in India, the severe unemployment and low labour productivity pose insuperable difficulties for accelerating economic growth. It seems these questions are caught in complex cob-web of causes and consequences which are difficult to identify for appropriate policy decisions by the prevailing performance of government.
11. Wage Adjustments on the Basis of Cost of Living and Selling Price Sliding Scales:
Wage adjustments are normally made from time to time according to changes of cost of living index either in basic wage rates or as dearness allowance. There are various formulae of wage adjustment, i.e., hundred per cent neutralisation called wage indexation, combined flat sun and percentage increase.
The adjustments may be made at predetermined intervals such as 2, 3, 6 months or may take place as soon as the consumer price index has changed.
The wage indexation based on consumer price index varies considerably from country to country. This method is also extremely inflationary, especially in India, if it is made without reference to labour productivity. To counter inflation, it is to link wages not only with cost of living index but also with national trends of real wage rates and standard of living.
Another practice, though of limited use, may be considered is to link basic wage rates of workers to the rise and fall in the selling prices of the products of the industries where the workers are employed.
Such “selling price sliding scales” may be particularly useful in those industries where capacity to pay is largely determined by the selling prices of a few products of easily defined grades and subject to national and international market fluctuations, and also where the proportion of wages in total cost is significant.
But this criterion of wage policy may be handicapped by trade unions’ opposition to wage-cut when prices are falling. Also deficit trade balance may hinder the pricing policy of firms from lowering prices at competitive markets.
12. Wage Increments:
Annual or periodic wage increments are the regular and common features of micro level wage policy both in private and public sector, on the basis of seniority, experience and merits. There may be arguments and counter arguments for such practice, but generally speaking, this ensures work commitment and efficiency over the years recognising the value of work experience.
But there must be some limit towage increments taking into consideration the importance of both merit and seniority, especially in India. Withholding of increments or awarding special extra increments may also be considered along with regular and automatic increments to emphasize the importance of punishment and reward for job performance.