Wage Policy

Learning Objectives:
• Objectives of Wage Policy
• Need for Wage Policy
• Formulation of Wage Policy in India
• Recommendations on Wage Policy
• National Wage Policy
• Income Policy

Chapter Ten Wage Policy 1

Structure:

1. Introduction
2. Objectives of Wage Policy
3. Need for Wage Policy
4. Formulation of Wage Policy in India
5. Policy in the post Independence Period

Chapter Ten Wage Policy 2

Structure:

6. Policy Enunciated in the Plans

7. Recommendations on Wage Policy
8. National Wage Policy
9. Income Policy
10. Summary

Chapter Ten Wage Policy 3

1. Introduction:
In all countries, wage policy is a complex
and sensitive area of public policy.
This is because the relative status of
workers in the society, their
commitment to industry and attitude
towards management, their morale and
motivation towards productivity, their
living standard and in fact their way
of life are all conditioned by wages.
Thus Wage Policy has in addition to
economic, social and cultural elements
also.

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1. Introduction:
The Wage Policy impacts workers, their
employers, consumers, the society and
as a consequence the State. Wage policy
is determinant of shares of rival
claimants to the product of industry
and national dividend. There is often
conflict between social and private
interests.
It has to be pragmatic though it does not
follow that it has to be unscientific
and remain simply a matter of
expediency.

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2. Objectives of Wage Policy:
The real purpose of Wage Policy is
to protect workers against exploitation
or unduly low wages;
to improve workers efficiency and
performance;
to encourage acquisition of new skills;
to provide incentive to labour
mobility;
to stabilize prices and
to accelerate nation’s development
process.

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2. Objectives of Wage Policy:
The ILO has enumerated four objectives of
a Wage Policy in developing countries.

1]To abolish malpractices and abuses in

wage payment;
2] To set minimum wage for workers
whose bargaining position is weak
because they are unorganized,
accompanied by separate measures to
promote the growth of trade unions and
collective bargaining.

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2. Objectives of Wage Policy:

3] To obtain for workers a just share

in the fruits of economic development,
supplemented by appropriate measures to
keep workers’ expenditure on
consumption goods in step with
available supplies so as to minimize
inflationary pressures.
4] To bring about efficient allocation
and utilization of manpower through
wage differentials and more appropriate
systems of payments by results.

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3. Need for Wage Policy:
Formulation of proper wage policy in India
that is consistent with developing
economy is hampered by

● population pressure
● growing inequalities of income
● historical past
● dualism in the economy
● increasing unemployment
● low rate of growth

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3. Need for Wage Policy:
The developing economies have to grapple
with a wage policy connected with
general rate of increase wages, and the
range & structure of wage differences
and the variability of wages.

Unlike developed countries, there is an

urgent need in India to guarantee a
certain minimum living wage to the
workers , so as to remove sweating and
to improve productivity.

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3. Need for Wage Policy:
ILO has defined the term ‘wage policy’ to
mean “ Legislation or Government action
calculated to affect the level or
structure of wages, or both, for the
purpose of attaining specific
objectives of social and economic
policy.”
Generally, a wage policy aims at imposing
a discipline on all types of wage
payments so that excessive, inadequate
or inappropriate wage payments do not
obstruct fulfillment of social economic
objectives.
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4. Formulation of Wage Policy in India:
Before Independence, the Government in
India did not wish to interfere in
labour problems, except to secure fair
dues for the labour.
Provision of living wage and recognition
of the principle of equal wages for
work of equal value figured prominently
among the objectives of the ILO.
India started its journey towards wage
policy by passing legislation for
Minimum Wages, Payment of Bonus and
introduction of dearness allowance to
neutralize effects of rising prices on
the real wage of workers.
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5. Policy in Post Independence Period:
Soon after Independence, the Government
embarked upon a series of legislation
starting with Industrial Disputes Act ,
1947.
This was followed by establishing Fair
Wages committee and passing of the
Minimum Wages Act, 1948.
Though there was no unified and well
designed wage policy, these steps
provided evidence of the Government’s
desire to raise the standard of living
of the masses.

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5. Policy in Post Independence Period:
The policy direction was also incorporated
in the article 43 of the Constitution,
which lays down that the state shall
endeavour to secure , by suitable
legislation or any other way, to all
workers, agricultural, industrial or
otherwise , work, a living wage,
conditions of work, ensuring a decent
standard of life and full enjoyment of
leisure and social and cultural
opportunities.
Equal pay for equal work for both men and
women has been laid down as directive
principle in the article 39.
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6. Policy Enunciated in the Plans:
The advent of the era of planning brought
about in its wake , a set of new
problems as well as popular
expectations. Growth without inflation
has become the avowed objective of
Indian planning. The inflationary
potential inherent in the process of
development called for a close check on
the wage price spiral.
Significant statements regarding wage
movements and its repercussions on
economic stability of the country were
provided in the Five Year Plans of
India.
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6. Policy Enunciated in the Plans:
The First Five Year Plan [1951 -56]
advocated :
● wage increases for removing anomalies
or where existing wages are abnormally
low.
● wages in public sector be on par
with private sector.
● set up permanent wage boards with
tripartite composition.
● review, by local or overseas
technical experts, of wages, profits,
terms and conditions of payment and to
lay down norms and standards for
determination of wage and bonus.
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6. Policy Enunciated in the Plans:

● standardization of wages as fast and

as much as possible.
● a scientific assessment of relative
work needs in different occupations and
industries.
● merging of a part of dearness
allowance with basic pay in both public
and private sectors.
● full and effective implementation of
provisions of Minimum Wages Act
especially for agricultural workers.

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6. Policy Enunciated in the Plans:

The Second Five Year Plan [1956 - 61]

advocated the system of payment by
results to improve labour productivity.
The Indian labour Conference in its 15th
session adopted certain norms for need
based minimum wages. But the government
did not commit to enforce them.
The Third Five Year Plan did not have any
significant recommendation related to a
wage policy.

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6. Policy Enunciated in the Plans:
The Fourth Five Year Plan [1969 - 74] had
three useful observations 1] the price
stability is basic to wage policy. 2]
the linking of wage increases with
increases in productivity. 3] the
necessity to extend the system of
payment by results by agreements with
workers and in the atmosphere of good
industrial relations.
The plan set the objective of non-
inflationary process of economic
growth, removal of income inequality &
concentration of economic power.

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6. Policy Enunciated in the Plans:
The Fifth Five Year Plan [1974 - 79]
stated that the reward structure of the
industrial employees in terms of wage
and non wage benefits must be related
to performance records in industrial
enterprises.
The Sixth Five Year Plan [1980 - 85]
called for to 1] narrow down existing
inequalities and eliminate malpractices
in regard wage rate and wage payment,
2] lay down criteria for fixation and
revision of minimum wages to evolve
wage structure without impinging on
the freedom of parties to negotiate
wage agreements.

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6. Policy Enunciated in the Plans:
3] raise the level of minimum wages in
such a manner that the concept of need
based minimum wage becomes a reality.
4] make conscious efforts to remove the
marked disparity in wage levels
noticed between inter state, inter
region and inter industry occupations
and also between organized and non-
organized and rural and urban sectors.
5] extend the system of productivity
linked bonus introduced in Railways ,
Posts and telegraphs to other
establishments where linkage with
profits is not a possible proposition.

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6. Policy Enunciated in the Plans:

The Seventh Five Year Plan [1985 - 90]

stated that the basic objectives of
wage policy are a rise in the levels of
real incomes in consonance with
● increases in productivity, ● promotion
of productive employment,● improvement in
skills, ● sectoral shifts in desired
directions, ● reduction in disparities.
It stressed greater efficiency, higher
productivity and fast industrial growth
through a well coordinated system of
incentives and in consonance with the
objective of self reliance.
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6. Policy Enunciated in the Plans:
The Eighth Five Year Plan [1992 - 97] in
its approach to labour welfare has
suggested for adequate levels of
earnings, safe and humane conditions of
work, and access to minimum social
security benefits for enhancing quality
of life of workers and their
productivity.
It recommended steps on a larger scale to
improve quality of working life of the
unorganized sector including women
workers. It emphasized the need for
safety, education, participation of
workers in management etc etc.
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6. Policy Enunciated in the Plans:
According to the Ninth Five Year Plan
[1997 - 02] planning process attempts
to create conditions for improvement in
the labour productivity and for
provision of social security to
supplement operations of labour market.

The plan programmes provide funds for

 skill formation
 development and exchange of data on
job opportunities,
 monitoring of working conditions
 industrial harmony
 insurance against disease and
unemployment

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6. Policy Enunciated in the Plans:
As of now there is no uniform wage policy
for all sectors of economy.
Wages in the organized sector are
determined through collective
bargaining.
Department of public enterprises issues
guidelines and permits negotiations for
wage revisions in the public sector.
Public enterprises have to fund these
revisions through their internal
resources and have to ensure that there
is no increase in labour cost per unit
of output.
Slab system was introduced for
rationalization of dearness allowance.
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7. Recommendations on Wage Policy:

The Committee on Wage Policy was set up in

1973. It focused only on organized
private sector which is very small in
terms of numbers but its economic
importance outweighs other sectors.

The Committee set following objectives for

the Wage Policy.
1] to ensure minimum wages above poverty
line.
2] to ensure a due share in economic
growth for workers and employees.
3] to rationalize wage disparities.

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7. Recommendations on Wage Policy:

4] to eliminate wage disparities between

organized and unorganized sectors
5] to compensate workers for exceptional
hazards to health and life involved in
certain occupations
6] to compensate workers to an appropriate
degree for rises in cost of living
7] to avoid pushing up wages to a level as
would encourage substitution of labour
by capital or reduce overall demand for
labour.

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7. Recommendations on Wage Policy:

8] to provide incentives for higher

productivity and acquisition of skills.
9] to reduce wage disputes to the minimum
and thus contribute to healthy
industrial relations.
10] to promote vertical and spatial
mobility of labour.
11] to remove malpractices in payment of
wages.

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7. Recommendations on Wage Policy:

For achieving these objectives, a national

wage structure needs to be evolved. The
total wages receivable by a worker in
this structure will comprise :
1] minimum wages
2] skill differentials
3] compensation for exceptional hazards
4] growth dividend
5] dearness allowance
6] share in profits.

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7. Recommendations on Wage Policy:

The NCL has attempted to assess the

general wage policy of the Government
since Independence. For this purpose it
chose five indicators :
1] the state of industrial harmony,
2] changes in worker’s level of living,
3] changes in productivity
4] impact of wages on prices and
5] share of wages in the value added by
manufacture.

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7. Recommendations on Wage Policy:

Wage disputes were responsible for most

strikes and loss of production. While
earnings of workers increased, their
real wages remained constant. While
productivity has increased, share of
labour in increased gains of
productivity has decreased. The value
added by manufacture has significantly
increased but wages have not kept pace
with production.

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7. Recommendations on Wage Policy:

The Commission recommended :

1] a wage policy should be framed after
considering price level that can be
sustained, the desired employment
level, requirements of social justice
and capital formation needed for
growth.
2] the policy should consider a set of
principles of being consciously adopted
to guide , by means of legislation or
otherwise, actions of Government as
also of parties vitally concerned.

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7. Recommendations on Wage Policy:

The Commission recommended :

3] a wage policy should foster an

appropriate choice of techniques to
maximize employment at rising levels
of productivity and wages.

4] wage policy should aim at progressive

increase in real wages and in
conformity with expectations of the
working class.

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7. Recommendations on Wage Policy:

Arjun Sengupta Committee submitted its

report on wage policy in the public
sector in 1984. The Committee suggested
1] basic wage structure be determined
on the industry or industry-cum-region
basis.
2] wage should be determined by a wage
commission or industry wise wage board.
3] in addition to basic wage, there
should be a component linked with
productivity and it should be
negotiated by each enterprise.

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8. National Wage Policy

Recommendations received from Committee on

fair Wages, series of judicial
pronouncements, the tripartite
conclusion of the 15th session of Indian
labour Conference on the need based
wage, Five Pay Commissions, have all
done useful good work.
But their work was not regulated by a
coordinated wage and income policy.
Studies carried by the Government and
professional bodies have arrived at
certain guiding principles and
objectives of wage policy.
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8. National Wage Policy

Guiding principles for a wage policy for

organized sector are
1] a national minimum floor wage
independent of capacity of industry to
pay.
2] the concept of ’capacity of industry to
pay’ for arriving at wage level above
the floor
3] instrumentality of the dearness
allowance to protect the purchasing
power.

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8. National Wage Policy

4] the doctrine of deferred wage and

profit sharing subject to availability
of reallocable surpluses
5] the linking of increase in wages to the
increase in production and/or
productivity
6] a rational basis for determining the
wage differentials taking into account
the skills, physical efforts and
working conditions etc. of different
jobs in industry & in relation to other
industries.
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8. National Wage Policy
In India the basic objectives of national
wage and income policy could be
1] to provide minimum wages to workers
employed in sweated industries;
2] to fix wage ceilings ;
3] to improve the existing wage structure
4] to control inflationary tendencies
5] to accelerate export promotion and
6] to improve the economic and social
position of the working class.
However, the wage policy evolved hitherto
has failed to achieve these objectives.

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9. Income Policy
A wage policy needs to be dovetailed into
appropriate income and price policy.
The Income policy refers to the composite
measures undertaken by the Government
to regulate earnings, profits and
prices, to achieve one or more
objectives relating to price stability,
balance of payment, fuller employment,
faster economic growth and social
justice.
If income policy is to succeed, it has to
be simple, rational and economically
feasible.

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10. Summary
Wage Policy in the Indian context is
influenced by a number of economic and
social factors.
Without controlling non-wage incomes and
unaccountable incomes which have a
suffocating impact on the economy,
evolution of a wage policy would be
difficult.
It necessarily involves a delicate balance
among numerous conflicting goals and
interests.

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10. Summary
Every organization must frame its own wage
policy keeping in mind the interests of
the management, employees, the
consumers and the community in general.
In order to make the wage policy more
effective , it should be carefully
formulated, must be communicated to
staff and workers and the trade union.
It needs to be reviewed and revised to
meet the changing needs of the
organization.
Prices, wages and profits must be thought
of together and balanced for full
economic growth.
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Thus we arrive at the end of

“Wage Policy ”

Next we move to Chapter Eleven –

“ Employee Compensation”

Good Luck!

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