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Comparative Analysis Of Minimum Wage Laws In India v/s United States Of America, United Kingdom And Australia

The nature of labour laws in developing countries is often perceived to be exclusive of informal employment or the unorganised sector without written contracts or unions, though the contrary is actually true. Article 43 of the Indian Constitution conceptualised the need for a better standard of living by enacting appropriate and uniform economic and labour states for every Indian citizen.

The Indian Minimum Wages Act, 1948 was thus formed soon after independence, wherein Section 3 and 4 of the Act lays down the procedure for fixing the minimum rates of wages for different class of employment. The Act sought to regulate wages for two-fold reasons; firstly, it intended to bridge the gap between the purchasing power of the lower class and the middle class; secondly, increase collective power of wage labourers against exploitative employers and more aggressively push for the right to work.

With the recent fiscal conditions after the COVID-19 pandemic and the new Wage Codes set to come in by mid-2022, it is high time that the current minimum wages and the laws governing them are looked at in order to not repeat past errors and help bring back economic stability in the Indian labour force. To get a better understanding of India's position thereof, it is necessary to draw a comparison between India's current minimum wage model and minimum wage regulations in the US, UK and Australia.

This is because these three countries offer very diverse mechanisms of calculating minimum wages and the allied benefits offered by their governments. Additionally, the author will give her comments on the impact of minimum wage post-COVID and will critically analyse the reasons for the prominent gender gap in wage parity around the world even though equal minimum wage laws exist on paper.

The Indian Minimum Wage Paradigm

Minimum wages in India varies from state to state, area of development within state or the zones, region, industry, occupation, level of skill and nature of work. The Codes on Wages Act 2019, which intends to replace the Minimum Wages Act, 1948 as well as the Equal Renumeration Act, 1976, mandates that employers pay the minimum wage as specified for the particular state and sector. Central and State governments are further obligated to revise and review the minimum wage atleast every five years.

Even though India might not offer a minimum wage as high as those in developed countries, it offers one of the most competitive labour costs in Asia with an average of Rs. 176 per day as the national floor-level wage. The kinds of work and time allotted to such work is different for more than 2,000 jobs in India just for the unskilled sector, while there are over 400 categories of employment existing in the country.

Since India must account for all these possibilities, they use a complex method to set such minimum wages, with the monthly minimum wage calculation (average is Rs. 32,800), which is basic wage plus variable dearness allowance (which adjusts the minimum wage for inflation), consumer price index (rise and fall) and the house rent allowance.

Wages Code has also introduced a provision for overtime pay for even 30 minutes extra work. Some states like Andhra Pradesh have come with initiatives that provide for tax breaks to encourage companies, whether inter-state or foreign, that have set up their businesses here to hire locally, fostering growth in the state's economic value.

Under the new Wage Codes, stricter penalties upto 3 months imprisonment and Rs. 1,00,000 fine will be imposed in the event of non-compliance to the minimum wage laws. The author believes that the Wage Code's additional feature of appointing inspectors who also perform the role of facilitator is a improvement from Section 19 of the Minimum Wages Act, as it expands their powers and responsibilities, especially with regards to acting as a guide for employers who might not have the full knowledge of the law.

Despite the fact that India is a federation with a strong centralising tendency, the 2019 Wages Code has kept the pattern of keeping the minimum rate according to states rather than a national minimum wage being uniformly applicable to the country, which was also incorporated in the Minimum Wages Act. This is a good move in the author's opinion mainly because costs of production and acquiring raw material vary from state to state. We can draw a parallel to the population and cost of living as relevant factors to decide the minimum wage a worker can earn to possess a relatively secure livelihood.

The minimum wage for a particular industry in Gujarat would be relatively less as compared to a worker working in the same sector in Delhi. The minimum wage fixed would vary even further depending on whether the worker is unskilled, semi-skilled, semi-skilled or highly skilled. Though the State governments can fix their own minimum wages, matters in respect of labour and welfare of the stakeholders involved therein come under the Concurrent List of the Indian Constitution, meaning that both the Union and State can govern such matters.

The biggest benefit of the Wage Codes is the inclusion of 60% of India's workforce, who were previously excluded from the ambit of applicability of the Minimum Wages Act as they belonged to a particular set of industries the Act did not intend to govern. With new kinds of jobs being created and existing jobes becoming obsolete within two to three years (both because of rapid technological advancement and innovation), it makes sense to amend the existing minimum wage model and consolidating it into the Code which has other laws, especially for purpose of seamless governance.

Laws in the USA vis à vis Minimum Wage

The ILO has noted that countries which are larger in size, like the US, tend to set a national min minimum wage floor while also providing for option to fix higher regional rates depending the economic contribution of the state. This naturally translates into metropolitan cities offering millions of jobs like DC and California having the highest minimum wage rates, respectively at at 15.2 and 15 dollars/hour. US tends to follow an hourly wage model as its standard notation, unlike India which looks at daily minimum wage rates as the default. India and 114 other countries look to the Central and State governments (executive) to set minimum wage rates, while the US Legislature, comprising of the Senate and House of Representatives, takes on the role.

India and 79 other countries also set a mandate to periodically review (for India, every 5 years), modify or adjust the minimum wages set from time to time, while the US has no law which casts such a legal obligation. Like India, the US also allows states, counties, sub-national authoritties and cities to set their own minimum wage rates, as long as they are equal to or above the national minimum wage set.

According to the Fair Labor Standards Act of 1938, US federal minimum wage is currently $7.25/hour, but the wages are higher in 29 states and D.C. because of demand and industrialisation and development in those regions. Even though a majority of working class millenials are employed in restaurants and bars, they get a reduced minimum wage of only $2.13/hour, which is further inclusive of the tips they get from customers, making it almost impossible to subsist on with the cost of living and gas prices.

Minimum Wage Model in Britain

On April 1st, 2022, the Chancellor of the Exchequer, Rishi Sunak, announced that there would be an increase in the minimum wage set. In the UK, the national minimum wage usually rises by 4% in accordance adjusted with the inflation rates as measured by the consumer price index (like we saw for India) to maintain a basic standard of living.

The National Minimum Wage Act 1998 creates and fixes a national minimum wage across the United Kingdom, unlike India and the US which have different rates for states. which. In a unique move, national minimum wage in the UK varies based on age, unlike the US and India. However, like US, it sets an hourly rate for minimum wage rather than daily like in India.

For workers who are under 18, it is £4.81; for 18 to 20 years of age, £6.83/hour; £9.18/hour for 21 to 22 years; aged 23 years or above, it is £9.50/hour and £4.30 for apprentices. Thus, we can see the minimum wage getting higher as a person becomes older to account for their increased responsibilities, including the possibility of having to financially support their partners and children.

The highest is for those aged 23 years or older (where the rate has increased by a whopping 6.6% compared to the one before April 2022), which is known as the national living wage, which is different from UK's "living wage". Despite the fact that this is the biggest increase by the British government since 2016, some have heavily criticised the change for still not being enough to keep up with the exorbitant housing rates in Britain.

Example: A 24-year old working for 35 hours a week at a full-time job would get a gross annual income £17,290, including tax and pensions payable. He will not be able to even rent a home for less than 33% of such pay in any place in the UK. Anyone 23 or over, working full time on the national living wage, will not be able to rent a home for less than a third of their pay in a single region of England.

The new living wage (adjusted for costs of fuel, energy, rent and food, so not only inflation considered, unlike minimum wage) after the April 2021 Autumm Budget (where new minimum wage was announced) is currently £11.05/hour for the city of London and 9.90/hour for the rest of the UK. The minimum wage might go upto £15 in the future if the Labour Party follows through on their promise made in 2021 to do so once they are elected.

Minimum Wage Struture in Australia

Like its fellow commonwealth nation (UK), Australia also has a national minimum wage as provided by the Fair Work Act, 2009, but it applies only to those employees not covered by a binding award given by the Fair Work Ombudsman or a valid subsisting contract. The minimum wages given by a contract or award are usually higher, like how the minimum wage rates in US states are higher than the US federal wage. Such wage rate is to be reviewed every year, as compared to India, where there is a mandate to review it only once in 5 years.

The relevant factors taken into consideration by Australia are employment type (like India), age (like UK) and capacity to do a particular work. Thus, the rates vary for apprentices trainees (like UK), juniors, employees with a disability. The latter can be incorporated in the Indian Wage Codes as well, as it provides for not just compensation for accident/injury on the job, but also a different minimum wage rates for those with a pre-existing injury before the job or subsequent injury in the course of employment.

As of 1 July 2021, the national minimum wage is $20.3/hour or $772.60 weekly. Thus, Australia calculates minimum wage hourly or weekly, like the US and UK. Since the Fair Work Commission reviews both the national minimum wage as well as the minimum wage rates under an award in July of every year, the wages are expected to again change on 1st July, 2022.

Conclusion and Suggestions
Some argue that a national wage in India is the way to go despite hesistancy from the Centre because additions like the GST further complicate the calculation of minimum wage apart from countless factors like level of skill, state population, sector. Labor unions across the country observed a nationwide strike in January, 2021 to protest the government's stalling on proposals in this regard and its inaction on increasing workers' minimum wages.

Even though interim orders were issued by the Supreme Court in 2020 directing employers to pay pending wages to workers, it did not solve the problem of raising minimum wage during the pandemic. The author further believes that in the wake of the pandemic, migrant workers should have been given a special minimum wage higher than the normal minimum wage by taking inspiration from the non-obsolete parts of the Inter-State Migrant Workmen Act, 1979.

Article 39(a) and (c) of the Indian Constitution provide for equal pay and Equal Renumeration Act, 1976 specifically prohibits gender discrimination in work, wages and minimum wages. Despite this, there is clear disparity between the sexes, which is getting worse during the pandemic, especially for female workers in the unorganised sector.

Many mothers during the lockdown had to balance their work and children. Besides this, a perusal of all three countries' models, their analysis including their similarities and differences and the factors they take into consideration for deciding rates can give India a clearer picture on what to incorporate into the Wage Codes. This would be a return to our history, where we took suitable provisions from American and other nations' labour legislations to form our own labour legislations after becoming an independent territory, including the Minimum Wages Act, 1948.

References:
  1. India Const. art. 43.
  2. Wage Regulation in India, 74 INT'l LAB. REV. 498 (1956).
  3. Minimum Wages Act, 1948, §§ 3, 4, No. 11, Acts of Parliament, 1948 (India).
  4. Uma Rani & Patrick Belser, Low Pay among Wage Earners and the Self-Employed in India, 151 INT'l LAB. REV. 221 (2012).
  5. Equal Renumeration Act, 1976, No. 25, Acts of Parliament, 1976 (India).
  6. A Guide to Minimum Wage in India in 2021, India Briefing (25th April, 2022, 7:05 PM), https://www.india-briefing.com/news/guide-minimum-wage-india-2021-19406.html/
  7. Kashif Mansoor et. al, Minimum Wage Compliance and Household Welfare: An analysis of over 1500 minimum wages in India, 147 World Dev. 6-17 (2021)
  8. New Wage Code Alert! Employees likely to get overtime for 30 minutes of extra work, DNA India (24th April, 2022, 10:59 AM), https://www.dnaindia.com/personal-finance/report-new-wage-code-alert-employees-likely-to-get-overtime-for-30-m inutes-of-extra-work-salary-pf-hike-money-news-2934786
  9. Supra note 3, §19.
  10. The logic behind different minimum wage systems, International Labour Organisation (25th April, 2022, 5:36 PM), https://www.ilo.org/global/topics/wages/minimum-wages/rates/WCMS_432669/lang--en/index.htm
  11. Drew Deliver, The U.S. differs from most other countries in how it sets its minimum wages, Pew Research Center (25th April, 2022, 8:36 PM), https://www.pewresearch.org/fact-tank/2021/05/20/the-u-s-differs-from-most-other-countries-in-how-it-sets-its-mini mum-wage/
  12. Even Breese, Minimum wage UK: How does Britain compare to the rest of the world?, Big Issue (25th April, 2022, 8:36 PM), https://www.bigissue.com/news/employment/minimum-wage-how-does-britain-compare-to-the-rest-of-the-world/
  13. Minimum wages, Australian Government: Fair Work Ombudsman (25th April, 2022, 9:02 PM), https://www.fairwork.gov.au/pay-and-wages/minimum-wages
  14. Why minimum wage won't fix India's woes, Livemint (24th April, 2022, 5:13 PM), https://www.livemint.com/news/india/why-minimum-wage-won-t-fix-india-s-woes-1565619815429.html
  15. Kashif Mansoor et. al, Minimum Wage Compliance and Household Welfare: An analysis of over 1500 minimum wages in India, 147 World Dev. 6-17 (2021).
  16. Ficus Pax Private Ltd. v. Union of India, W.P. No. 10983 of 2020.
  17. Inter-State Migrant Workmen Act, 1979, No. 30, Acts of Parliament, 1979 (India).
  18. India Const. art. 39(a), (d).
  19. Nidhiya Menon et al., The Impact of the Minimum Wage on Male and Female Employment and Earnings in India, 34 ADR 28–64 (2017).
  20. Pandemic hurt gender pay-gap in India further; more women failed to get deserving pay hikes, bonuses, Economic Times (25th April, 2022, 9:47 PM), https://economictimes.indiatimes.com/magazines/panache/gender-pay-gap-deepens-during-covid-women-left-behind-on-pay-hike-bonuses-study/articleshow/88187690.cms?from=mdr
  21. Rudolf Broda, Minimum Wage Legislation in Various Countries (1928).

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