Context: The Union Cabinet has cleared the new version of Code on Wages Bill, which seeks to define the norms for fixing minimum wages that will be applicable to workers of organised and unorganised sectors, except government employees and MGNREGA workers.

The Code on Wages will amalgamate the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976.

Background:

The code on wages is one of the four codes that would subsume 44 labour laws with certain certain amendments to improve the ease of doing business and attract investment for spurring growth.

The four codes will deal with wages, social security, industrial safety and welfare, and industrial relations.

What are the determining factors?

As per the Bill, minimum wages will be linked only to factors such as skills and geographical regions.

Present status: At present, minimum wages are fixed on the basis of categories such as skilled, unskilled, semi-skilled, high skilled, geographical regions, and nature of work such as mining and are applicable for 45 scheduled employments in the central sphere and 1709 scheduled employments in states.

As per the new Bill, the minimum wages across the country would be only linked to factors of skills and geographical regions, while the rest of the factors have been removed.

Floor Wage:

A National Floor Level Minimum Wage will be set by the Centre to be revised every five years, while states will fix minimum wages for their regions, which cannot be lower than the floor wage. The current floor wage, which was fixed in 2017, is at Rs 176 a day, but some states have minimum wages lower than it such as Andhra Pradesh (Rs 69) and Telangana (Rs 69).

Significance:

This is expected to effectively reduce the number of minimum wage rates across the country to 300 from about 2,500 minimum wage rates at present.

Key Issues and Analysis:

1. Central government may set a national minimum wage. Further, it may set separate national minimum wages for different states or regions.  In this context, two questions arise: (i) the rationale for a national minimum wage, and (ii) whether the central government should set one or multiple national minimum wages. 
2. States have to ensure that minimum wages set by them are not lower than the national minimum wage. If existing minimum wages set by states are higher than the national minimum wage, they cannot reduce the minimum wages.  This may affect the ability of states to reduce their minimum wages if the national minimum wage is lowered.
3. The time period for revising minimum wages will be set at five years. Currently, state governments have flexibility in revising minimum wages, as long as it is not more than five years.  It is unclear why this flexibility has been removed, and five years has been set for revision. 
4. The Equal Remuneration Act, 1976, prohibits employers from discriminating in wage payments as well as recruitment of employees based on gender. While the Code prohibits gender discrimination on wage-related matters, it does not include provisions regarding discrimination during recruitment.

Need for a national minimum wage:

One argument for a national minimum wage is to ensure a uniform standard of living across the country.  At present, there are differences in minimum wages across states and regions.  Such differences are attributed to the fact that both the central and state governments set, revise and enforce minimum wages for the employments covered by them. The introduction of a national minimum wage may help reduce these differences and provide a basic standard of living for all employees across the country.