Concept of Minimum Wages

This essay explores the concept of minimum wages, its implementation in India, and the arguments for and against it. It discusses the benefits of minimum wages in reducing poverty and increasing productivity, as well as the disadvantages such as unemployment and inflation. The essay also highlights the issues faced by India in implementing minimum wages.

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Minimum Wages
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Concept of Minimum Wages 1
Table of Contents
Introduction...........................................................................................................................................2
Definitions and concepts of Minimum wages........................................................................................2
Arguments in favour of Minimum wages laws......................................................................................3
Argument against the Minimum Wages Laws.......................................................................................4
Example of India related to minimum wages........................................................................................5
Implementation of Minimum Wage in India: -..................................................................................5
Issues faced by India regarding such implementation: -....................................................................6
Conclusion.............................................................................................................................................8
References.............................................................................................................................................9

Concept of Minimum Wages 2
Introduction
This essay is related to the concept of minimum wages, various theories and
principles of minimum wages and the arguments for and against a country adopting a
minimum wages. By using India as an example, we described how the minimum wages is
being implemented in the country and also described what are the advantages and
disadvantages from adopting that implementation and how such implementation will affect
the country. Minimum wages refers as minimum amount of payment which employee has
right to receive. It includes basic wages and various types of allowances. Purpose and
objective of the concept of minimum wages is to protect the employees for unduly low
payment. Its main objective is to provide minimum wages to the all employees who are
working in the organized sector. There are also various advantages and disadvantages of the
concept of minimum wages.
Definitions and concepts of Minimum wages
Minimum wages have been defined as “the minimum amount of salary which
employer will be liable to pay to the employees for the work performed during the given
period of time, which is fixed amount it can’t be reduced by any agreement or contract
between employer and employee” (Webb, 2009). Purpose of minimum wages is to provide
minimum amount of remuneration to the employee for their performance, protect employee
against low remuneration, reduces discrimination among employees on the basis of age and
gender, overcome poverty and it will also reduce bargaining (Singapore Minimum Wage,
2019). There are various factors which affect the effectiveness of minimum wages such as
industry in the economy, migrant worker, agreements and contracts and the extent to which
company can afford protection to all the employees for maintaining employment relationship.
It affect positively on the employment. Firstly minimum wages concepts were implemented
in New Zealand in 1894. Minimum wages includes basic salary and other allowances but it
does not include travelling, housing and food allowances. Basic salary is calculate by
dividing 12 x monthly basic rate of pay by 52 average number of days an employee is
required to work in a week. According to the demand and supply model, when there is
increase in the minimum wage then there will be decreases the employment of minimum
wage employees (Yah & CHEW, 2009). It effects on employment, distribution of
remuneration among low paid worker and high paid worker, worker’s skills, prices, profits,

Concept of Minimum Wages 3
on-the-job training and the distribution of income among low income families and high
income families (Marginean, 2013). There is National Wages Council which guides and
provides all information related wages. Implementation of minimum wages is only relevant if
it is above the market wages. It is decided by the federal government.
Arguments in favour of Minimum wages laws
Following are the benefits while implementing Minimum Wages Laws:
1. Reduce poverty: By the concept of minimum wages, poverty level may be reduced.
Minimum wage increased the salary of the worker, it will increases their income
level, increase the standard of living for the poor employee because if their income
will increase then they will spend more on purchasing the products , overcome
poverty, removes financial stress and encourage education (Arguments for increasing
the minimum wage, 2019).
2. Increase productivity: The implementation of minimum wages will help in increasing
worker’s productivity. According to the efficiency wage theory, higher wages will
motivate and encourage the employee to work more hard thus it will increases their
productivity and efficiency. If company will pay higher to the employee then they will
perform better because of fear of losing their job. It also help in increasing job growth
and efficiency of the organization because the incremental in technological
development (Warren & Hamrock, 2019).
3. Increase incentives: It will be the additional incentives for the unemployed people
who are searching the jobs. It will also help to increase the participation rate of
unemployment because it encourages people to join the workforce and earn money.
4. Increase consumption: Minimum wages will increase consumption level in the
country because it helps in increasing the spending capability of the employees. So,
higher consumption level will automatically help the economy of the country (Keller,
Halkier, Wilska, & Truninger, 2017).
5. Decrease government spending: Minimum wages will effects government cost or
spending. It helps in reducing the cost of government towards social welfare
programs. If employees get minimum salary then they will on depend on the
government for fulfilling their needs rather than they will able to spending money on
consumption. So, government will be able to reduce the cost towards social welfare
programs and can use that money for investment. It will also help the government in

Concept of Minimum Wages 4
reducing the cost towards budget and government does not need to put extra effort on
welfare system because it does not have an essential effect on the unemployment as
compared to the other economic factors (Ferandez, Holman, & Pepper, 2014).
6. Increase work ethics: It will helps in increasing the work ethics of those people who
does not earn more because employer demand more return from the higher cost of
recruiting these employees.
7. Promote economic growth: Minimum wages will promote the economic growth of the
country because the incremental in consumption level of the poor people and the
productivity of the organizations.
Argument against the Minimum Wages Laws
Following are the disadvantages while implementing minimum wages laws:
1. Unemployment: Minimum wage will cause unemployment. When minimum wage
curve is above the market equilibrium then demand and supply of labour will not
balance because in that case supply will be more than demand. So, in this situation,
company wants to reduce supply, so it will result the unemployment. For the
implementation of minimum wages laws, company wants the lower number of
employment and raising the price of the products, so it will also leads to the
unemployment (Colson, 2011) .
2. Inflation: Minimum wages may cause inflation because increase in price or increase
in the money supply for balancing the demand and supply curve. Because of
minimum wages laws, all company will try to increase their product’s price for
balancing their spending on the wages for the employees (Hall, 2009).
3. Increase cost of investment: It will increase the cost of investment for the company
because it has to pay more to their employees, so it will increases cost of production
for the company, which automatically increases the cost of investment. So, it will
result in decreasing the revenue & profitability of the company.
4. Affects small businesses and low-skill labourers the most: Enforcing of minimum
wages laws means small businesses and low-skilled labourers are forced to pay
specific amount to their employees. Because of the minimum wages, company forced
to increase their price, change the rate which they charge, so it will result the lower

Concept of Minimum Wages 5
level of customer’s satisfaction and it will affect overall revenue of the company
(Mullen, 2018).
5. Encourage outsourcing or offshoring: This law encourage the employer to save
labour costs, so they can save through outsourcing or offshoring opportunities and by
using independent contractors. Example- Suppose if a worker is working in the
United States and his salary is $15,000 and a worker with similar skills is working in
the Bangladesh and his salary is $12000 then by outsourcing, company can save
$3000 per year on the cost of hiring of labour at minimum wages in Bangladesh.
6. Decrease in efficiency: When a government fix the minimum amount of remuneration
for all the employees then that minimum amount will be considered as maximum
amount by the employers. So, if the worker has high quality of skills and very
efficient for the work then also he will not be paid higher amount than the minimum
wages which is fix by the government. Thus, it will result in decreasing the efficiency
of the workers (Palmer, 2018).
Example of India related to minimum wages
Implementation of Minimum Wage in India: -
In India, Minimum wage is being implemented according to the Minimum Wages
Act, 1948. This act passed by the Indian Parliament, fixes the minimum wage for the
workers, both skilled & unskilled and it is applicable to the whole India (India’s Minimum
Wage Structure: A Brief Explainer, 2017). It is also implemented as per Indian Constitution.
Its objective is to fixing a minimum rate of wages for all the companies where employees are
unorganized and have more than 1000 workers and controlling the exploitation of workers in
the companies. It is set by the tripartite committee according to the cost of living index which
depends on various factors such as consumption, basic requirement and education etc. and it
is differ for skilled, unskilled and semi- skilled workers. Under this act, both state and central
government fix the wages as per their own scheduled. So, the wage rate is no single uniform
for all states because of various differentiating factors in all states. If worker does not get
minimum wage from the company then he has a right to claim on the employer within 6
months under section 20 of Minimum wages act, 1948. There is also penalties for the
industry regarding non- payment of wages to their workers. As per section22 punishment is
imprisonment up to 5 years or fine Rs. 10000/- or both (Minimum Wages, 2019).

Concept of Minimum Wages 6
Fixation of minimum wages
Issues faced by India regarding such implementation: -
1. Unemployment: The above implementations positively affect the unemployment rate
in India. By increasing minimum wages, supply will be increases than demand then
firms want to balance the demand and supply curve. So, they stop hiring the new
employees and it is decreased by 5% as per the report (Fields, 2009).
2010 2012 2014 2016 2018
0
1
2
3
4
5
6
7
Unemployment rate
[Source – TRADINGECONOMICS.COM/ International Labour Organization]
Notification of Minimum wages
Hearing of the Representatives
Publish recommendations in National Publications
Recommendation of Advisory Board for both skilled and unskilled workers

Concept of Minimum Wages 7
2. Reduce poverty: In India, 30% of the salaried worker and 40% of the casual worker
who earn minimum wages belong to the poor families. So, if they receive minimum
wage then it will help them to overcome poverty. National minimum wages would
reduce poverty by 7 to 10 per cent and state level minimum wages would reduce
poverty by 3 to 6 per cent. So, it shows that minimum wages whether at state or
national level may help workers to overcome the poverty (Patnaik, 2009).
3. Economic Growth: Minimum wages help the country in their development of
economy because of increasing in the consumption level and productivity of the
businesses, so it will contribute directly to the GDP of the country (Zaccarelli, 2011).
4. Lack of awareness: Because of the poor implementation or enforcement of the act
various issues arises in India such as people are not aware properly about this act. As
per report, almost 80% of the workers in the unorganized sectors earn less than Rs 20
per day or less than half of the amount of minimum wages.
5. Inflation: Because of minimum wages act, employer forces to increases their prices of
the products to get balance return for their investment.
2002 2004 2006 2008 2010 2012
0
5
10
15
20
25
Minimum wages
Inflation
Annual growth (%) in inflation due to minimum wages
[Source - (Nadhanael, 2019)]

Concept of Minimum Wages 8
Minimum wages act, 1948 is being implemented in India for providing minimum
wages to the workers and protecting them. There are several benefits of this act such as it
helps in boosting the GDP or economic growth of the country, reduce poverty, reduce their
cost towards social welfare programs and increase the level of consumption. India also faced
many issues such as increases in unemployment rate, inflation rate and unfair determination
of minimum wages due to poor implementation and enforcement of the Minimum wages act,
1948. So, India should increase the awareness of the act among workers through various ad
Campaign at social media platforms.
Conclusion
Hence, the concept of minimum wages is essential for every country because it will
help in increasing the GDP or economic growth of the country. Its main purpose is to protect
the individuals from the low amount of remuneration. In India, there is Minimum Wages Act,
1948 applicable and its aim is to provide wages to the every worker for their performance
during given period of the time. There is not specific amount mentioned in this act, so it is
applicable according to the states. India faced so many issues from such implementation such
as increasing unemployment and inflation rates, reduce poverty, improving economic growth
etc. If minimum wages is being applied by the country then there will be various benefits by
such implementation. It will help in reducing poverty, increasing the consumption level and
productivity for the businesses so it will directly contribute to the GDP of the country, job
security for the employees, cost control, better utilization of resources, increase incentives for
the workers and decreasing the cost of government towards various incentives and
subsidiaries which government provide to the poor people for helping them. But it also have
some negative impact such as unemployment, increase in inflation level because of
increasing in the price of products by the government, increase outsourcing, lack of quality of
employees, lack of effectiveness of the companies, may increase corruption, employer does
not pay high than minimum wages to the higher skilled workers, decrease efficiency level of
workers and increase the cost of investment for the businesses.

Concept of Minimum Wages 9
References
India’s Minimum Wage Structure: A Brief Explainer. (2017). Retrieved February 28, 2019,
from India Briefing: https://www.india-briefing.com/news/india-minimum-wage-a-
brief-explainer-15102.html/
Arguments for increasing the minimum wage. (2019). Retrieved February 28, 2019, from
Human Resouces: https://www.humanresourcesmba.net/lists/5-arguments-for-
increasing-the-minimum-wage/
Minimum Wages. (2019). Retrieved February 28, 2019, from Simpliance:
https://www.simpliance.in/minimum-wages
Singapore Minimum Wage. (2019). Retrieved 2 28, 2019, from Minimum-wage.org:
https://www.minimum-wage.org/international/singapore
Colson, M. (2011). Unemployment. London: Raintree.
Ferandez, J., Holman, T., & Pepper, J. (2014). The Impact of Living Wage Ordinances on
Urben Crime. Industrial Relations: A Journal of Economic and Society, 53(3), 478-
500.
Fields, G. (2009). The unemployment effects of minimum wages. International Journal of
Manpower, 15(2), 74-81.
Hall, R. E. (2009). Inflation: Causes and Effects. Chicago: The University of Chicago Press.
Keller, M., Halkier, B., Wilska, A., & Truninger, M. (2017). Consumtion. London:
Routledge.
Marginean, S. (2013). Effects of Raising Minimum Wage: Theory, Evidence and Future
Challenges. Procedia Economics and Finanace, 6, 96-102.
Mullen, T. (2018). The Best Argument Against Minimum Wage Laws: You Don't Own Other
People. Retrieved February 28, 2019, from FEE: https://fee.org/articles/the-best-
argument-against-minimum-wage-laws-you-dont-own-other-people/

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Nadhanael, G. (2019). Recent Trends in Rural Wages: An Analysis of Inflationary
Implications. Retrieved February 28, 2019, from Reserve Bank of India:
https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=2846
Palmer, D. (2018). What are the arguments for and against minimum wage laws? Retrieved
February 28, 2019, from Quora: https://www.quora.com/What-are-the-arguments-for-
and-against-minimum-wage-laws
Patnaik, U. (2009). Neo-liberalism and rural poverty in India. Economic and Political
Weekly, 42(30), 3132-3150.
Warren, J., & Hamrock, C. (2019, February 28). The Effect of Human Wage Rates on High
School Completion. Social Forces, 88(3), pp. 1379-1392.
Webb, S. (2009). The Economic Theory of Legal Minimum Wage. Journal of Political
Economy, 20(10), 973-998.
Yah, L. C., & CHEW, R. (2009). Wages And Wages Policies: Tripartism in Singapore.
Singapore: World Scientific Publishing Co. Pte. Ltd.
Zaccarelli, B. H. (2011). Minimum Wages-Maximum Dignity: A Manager's Guide To
Affirming The Worth Of All Employees. United State of America: iUniverse, Inc.
Bloomington.