A suitable wage policy for a developing economy must ensure economic growth with stability. If the wage level is too high, it will hamper industrial growth.
If the wage level is too low, it will adversely affect the workers. Therefore, a proper wage level is necessary to sustain a steady growth of the economy. There are two main considerations in wage fixation. They are:
1. To adjust wages to cost of living (need based wages), and
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2. To link wages with productivity.
Considerations
1. Need Based Wages:
The meaning of the term ‘need-based wage‘ is that the wage should enable the worker to provide for himself and for his family not merely the bare necessities of food, clothing and shelter but should also include education for children, protection against ill-health, requirements of essential social needs and a measure of insurance against misfortunes and old age.
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The Indian Labour Conference held in 1957 accepted the following norms of determining the need based wage:
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1. The standard working family should consist of three consumption units.
2. The minimum requirements of food should be calculated on the basis of net intake of calories as recommended by Dr. Aykroyd.
3. The clothing requirements should be taken as 18 yards per head per annum.
4. As for housing, the rent corresponding to the minimum provided under the Government Industrial Housing Scheme.
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5. Fuel, lighting, and other miscellaneous items should constitute 20 % of the total minimum wage.
However need-based wage has many practical difficulties. If wages are raised to the need-based wage level and there is no corresponding increase in productivity, there is bound to be inflationary rise in prices.
Further the capacity of the industry to pay is relevant. This capacity of industry to pay will depend on the productivity of labour.
2. Linking Wages with Productivity:
Improvement in wages can result mainly from increased productivity. However, no attention is being paid to productivity, and wages are being either increased on an ad hoc basis or on the basis of cost of living.
The Third Plan observed that “for workers no real advance in their standard of living was possible without steady increase in productivity, because any increase in wages generally beyond certain narrow limits, would otherwise be nullified by a rise in prices”. However, linking wages with productivity poses problems on account of the following difficulties. They are:
1. Productivity in India is low. Since productivity is low, wages will have to be low.
This position is totally unacceptable to the workers. 2 Employers are opposed to the linking of wages with productivity because they are not interested in productivity but profitability.
3. Even employees are opposed to the linking of wages with productivity because, they feel that low productivity is due to poor management.
4. Employers argue that the rise in output is not due to the worker’s effort but because of improvement in technology, plant and machinery.
5. There is the difficulty of assessing productivity especially in industries where the output does not consist of standardised units.
3. A Suitable Wage Policy:
A suitable wage policy in a developing economy should aim at:
1. Containing the rise in prices which can be achieved through a suitable monetary and fiscal policy.
2. Linking wage increases to increase in productivity.