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Minimum Wage: A Comparative Analysis Between India & Latin America

As the name suggests, 'minimum wages' are the most basic or minimal amount of remuneration that any employer pays to the wage earner or employees, for the work which is performed during a specified or given period.[1] The definition of minimum wages gives a binding characteristic to its operation i.e., these wages are ought to be paid, regardless of the empirical method which is employed to fixing such wages.

Broadly, the central tenant to fixing minimum wages is to safeguard the workers against the exploitative cycle of low pay. Minimum wage may act as means to protect several small-scale workers who are vulnerable to exploitation because of lack of knowledge and coordination on part of wage earners.

Secondly, this not only protects the most low-paid or vulnerable workers but also the worker groups for whom is it necessary to ensuring maintenance of wages at 'equal pay for equal work' or at 'appropriate level,' like women.

Thirdly, it acts as a 'safety net' or threshold to keep poverty in check, and aids workers to keep afloat above the poverty line. Lastly, it serves as a quintessential tool to the macro-economic policy considerations like economic stability, growth of national objectives, distribution of income etc.[2]

Thus, the demand for fixation of minimum wages, that first arose out of the distress of the exploitation of wage earners in 'sweated-industry,' expeditiously spread across the non-sweated industry as well, especially industries where the workmen were either weakly organized or unorganized. The International Conference/ Geneva Convention of 1928 prescribed setting up minimum a 'minimum wage-fixing machinery' for industries where there existed no arrangement of effective regulation of wages. Article 223-228 of International Labour Code embodies the spirit of minimum wages.

In fact, the preamble of the legislation adopted by the Indian government i.e., the Minimum Wages Act, 1948, concurs with the objectives of Article 224 of International Labour Code. Furthermore, Part III as well as Part IV of the Indian Constitution replicates the commitment towards a minimum wage-machinery and guides the Executive to comply with the same.[3]

The concept of minimum wages encompasses within itself a vertical hierarchy of wages. Under such hierarchy, the highest standard is set by 'ideal wages' followed by a 'living wages' which is followed by 'fair wage.' At the bottom comes minimum wage. Thus, it could be said that basic minimum wage only provides for the bare subsistence, falling just above poverty line, while other wages that are above minimum wage provides essential commodities and frugal comforts.

However, recent judicial precedents like Kamani Metals[4] have ruled that minimum wage should not only cover basic sustenance but other standards like clothing, healthcare, children education and other amenities that enhance the viability and productivity of the workmen.

Therefore, the Indian courts are committed towards limiting the gap between the wages of vertical hierarchy. Nonetheless any sovereign nation or governments cannot circumvent the inherent element that premeditates the amount of minimum wage- the financial capability of the nation or simply 'national income.'

Even though the goal is to equate the minimum wage to an ideal wage or living wage, every nation is constrained by the affordability of setting the standard of minimum wage to an ideal level due to its prevailing economic conditions.[5] Thus we could imply that minimum wage of any country is directly proportional to its national income, and developed nations like France, Canada, United States etc. enjoy higher average minimum wage in comparison to developing and poor nations.[6]

In comparison to India, Latin American countries roughly use the same criteria to determine minimum wage. Firstly, it investigates the vital needs of workmen, secondly by comparing salaries to industry profits (employer's ability to pay), thirdly by the cost-of-living index and lastly by inquiring into the demands of economic developments. Latin American countries specifically emphasize on the first two criteria to establish an equilibrium between interests of employers and employees.[7]

Mexico's model of wage determination, that is largely followed by other Latin American countries, is congruent to minimum wage standard in India as it concentrates on additional amenities like health care and children education rather than bare sustenance.[8] As ruled under Hydro (Engineers) Private Ltd.[9] that determination of minimum wages would account the prevailing cost of economic commodities, several Latin American countries like Costa Rica, Chile follow the Mexican model to fix the minimum wage in proportion to cost of 'market basket' i.e., current price of goods and services, that again is identical to the Indian model.

With regards to the wage setting procedure, India uses Section 5 & 8 of The Code on Wages, 2019 (successor to Minimum Wages Act, 1948) to employ the procedure for setting minimum wages. Under the Indian legal position, the legislature has expressly enumerated a binding legislative policy to determine minimum wage. The executive/ appropriate government is merely charged with the duty of implementation of that policy.[10]

The lawmakers in India had foreseen that concept of fixing minimum wages is a dynamic exercise and the legislature is not equipped with sufficient means to investigate every industry. Thus, it delegated its powers to the Executive, to apply its own discretion but within the ambit of set legislative policy, as established by legislature in the statute. Hence, such a demarcation compliments the doctrine of separation of powers.

On the contrary wage fixation in Latin American varies from one country to another. Some employ strict legislative actions while others use an executive decree, like setting up a specialized agency.[11] Majority countries follow the Mexican approach i.e., to appoint a National Commission, for setting minimum wage rates.

These commissions are established under autonomous departments, composed of representatives and shareholders from all interested parties. Moreover, these commissions are tasked to periodically review the rates for effective regulations.[12] Nevertheless, other countries like Dominican Republic follow a strict legislative driven procedure to fix the wages.

Consequently, the practice of periodic revision of rates under this jurisdiction becomes redundant and the minimum wages can stay unchanged for many years despite growing inflations or other changes to macro-economic or social conditions. It is only when a substantial political pressure or interest is created upon the government would it act to intervene and revise the minimum wage by amending the statute.[13] Thus, it's evident that workmen in nations like Dominican Republic have dishearteningly low incentive to contribute.

Finally, despite the intrinsic objectives of wage policy expressly laid down to combat low pay, there still subsists problems within the framework that takes toll on the efficacy of the legislation. Firstly, the problem of 'non-compliance' reduces the effectiveness of wage regulation. It is a general trend that fixing low levels of wage ensures higher compliances and vice versa.[14]

Countries like India and Costa Rica fall within the latter category, with minimum wage at approximately 60-70% above median level, while the compliance is proportionately lower.[15] In India, only two-thirds of workmen are covered under wage policy.[16] The complex system of industrial classification in setting of minimum wage, devoid of a universal wage throughout administers difficulties in administrations and increases unawareness of wage rates.

It was only after MGNREGA (2005) scheme that wage compliance increased by 30%.[17] Another problem is the 'gender inequality' under wage payment, that put women at a disadvantage. Systemic and sociological organizations of familial institutions undoubtedly attribute to this problem. In conclusion, one could infer that we cannot directly influence the minimum wage as the same is directly dependent on the national economy, however we could eliminate the systemic inequalities within the framework that reduce its effectiveness.

By employing a more comprehensive compliance method. Penalties for non-compliance must be more stringent, and primary reliance on judicial remedy, that is an expensive and time-consuming process, must be reduced. Henceforth, ensuring that workmen speedily receive all outstanding amounts works as incentive to encourage workforce and discourages non-compliance on part of employer.

  1. Singh, Avtar and Kaur, Harpreet, Introduction to Labour and Industrial Law (2008), LexisNexis Butterworths, Wadhwa Nagpur, New Delhi.
  2. Bercusson, Brian. "Minimum Wage Objectives and Standards" Comparative Labour Law 6, no. 1 (1984) pp 67-81.
  3. Chandra Bhavan Boarding and Lodging & Ors. v The All Mysore Hotel and Associations. AIR 1970 SC 2042.
  4. Kamani Metals and Alloys Ltd. V. Their Workmen. AIR 1967 SC 1175.
  5. Pribram, Karl. "The Regulation of Minimum Wages as an International Problem" International Labour Review 17, no.3 (1948). pp 317-331
  6. See Bercusson, supra note 2
  7. Alburquerque, Rafael. "Minimum Wage Administration in Latin America" Comparative Labour Law 6, no.1 (1984). pp 57-66.
  8. Ibid
  9. AIR 1959 SC 182
  10. Supra note 3
  11. See Alburquerque, supra note 7
  12. Ibid
  13. Ibid, 66
  14. Uma, Rani; Belser, Patrick; Oetz, Martin. "Minimum Wage Coverage and Compliance in Developing Countries" International Labour Review 152, no.3-4 (2013). pp 281-310
  15. Ibid
  16. Ibid,397
  17. Ibid, 399

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