The Union Cabinet has approved the new 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.

* As per the Bill, minimum wages will be linked only to factors such as skills and geographical regions. At present, minimum wages are fixed on the basis of categories such as skilled, unskilled, semi-skilled, highly-skilled, geographical regions and nature of work such as mining and are applicable for 45 scheduled employments in the central sphere and 1,709 scheduled employments in states.

* As per the Cabinet approved 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.

* The 2017 Bill had proposed to link minimum wages to factors such as the skills required, the arduousness of the work assigned and the geographical location of the workplace.

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

* 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 Rs 176 a day, but some states have minimum wages lower than it such as Andhra Pradesh (Rs 69) and Telangana (Rs 69).

Pros and cons of national minimum wage

* As labour is included in the Concurrent List, both the central and state governments can make laws regarding this subject.

* Currently, state governments set minimum wages in their respective states. The Code introduces a national minimum wage to be set by the central government. This raises a question on who should set minimum wages.

* 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.

* On the other hand, it may be argued that the ability of states to adjust minimum wage levels may be affected if the Centre sets a national minimum wage. These adjustments may be required for variations in costs of living such as prices of essential goods and housing. Note that the Code does not provide for consultation between the central and state governments while determining the national minimum wage.

Rationale for allowing the central government to set multiple national minimum wages

* The Code allows the central government to set different national minimum wages for different states and regions. There arises a question whether the central government should set one national minimum wage or multiple national minimum wages.

* Various expert groups, such as the Second National Commission on Labour (2002) and the Working Group on Labour Laws (2011), had recommended the introduction of a single national minimum wage for the entire country.  The rationale for a single wage was to bring uniformity in minimum wages across states and industries.

* In addition, it would allow for easier implementation and compliance with the minimum wage law. In countries that have a national minimum wage such as the US and the UK, a single minimum wage is set by the central government (the national minimum wage in the US only applies to certain employees engaged in inter-state commerce).

* However, given the large regional variations in consumption and prices, the First National Commission on Labour (1969) had expressed reservation that a single national minimum wage may not be feasible. It may be argued that the choice of setting multiple national minimum wages has been given to the Centre to take into account these regional variations.

States cannot lower the minimum wage if the national minimum wage is reduced

* The Code allows the central government to set a national minimum wage. The minimum wages set by state governments may not be lower than the national minimum wage.  However, if the existing minimum wage set by a state government is higher than the national minimum wage, the state cannot reduce its minimum wage. This may affect the ability of states to reduce their minimum wages if the central government decides to reduce the national minimum wage.

* If economic conditions in the country change, such as a sustained period of deflation, there may arise a need for downward revision of minimum wages. In this scenario, the central government may revise the national minimum wage to a lower rate.  However, Clause 9(2) prohibits states from lowering their minimum wages.

* For example, for employment in the cement industry, the minimum wage in Bihar is Rs 186 per day. If the Centre introduces a national minimum wage of Rs 200, the Bihar government will have to revise its minimum wage to a level equal to or above Rs 200.  However, if the Centre later revises the national minimum wage to Rs 190, the Bihar government cannot reduce its minimum wage.