The importance of pay policy is obvious if one considers that an increase in wage often results in the increased cost of production and consequently an increase in the price paid by consumers.
The workers are concerned about the pay policy because it determines their standard of living. The state is also concerned because it must endeavor or to secure for all workers a living-wage and a decent standard of life.
According to the report of the Third Central Pay Commission, “A sound compensation package should encompass factors like adequacy of wages, social balance, supply and demand, fair comparison, equal pay for equal work and work measurement”.
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In a labour surplus economy like India, it will always be possible to find employees willing to accept jobs at lower pay.
Given the demand and supply condition, employers have an ethical responsibility to pay fair wages. Fair wages should be fair from the point of view of both employer and employee. While referring to basic wage levels, three terms are extensively used. They are:
1. Minimum Wages.
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2. Fair Wages.
3. Living Wages.
The above mentioned terms are used by the report of the Committee on Fair Wages set up by government of India in 1948, to determine the principles on which fair wages should be based and to suggest how these principles should be applied.
According to this committee, the minimum wage should represent the lower limit, the next higher level is the fair wage and the highest level is the living wage.
1. Minimum Wage:
It is that wage which, in any event, must be paid irrespective of the extent of profits, the financial conditions of the enterprise or the availability of workmen on lower wages. Minimum wages are needed to keep a man’s “body and soul” together.
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Minimum wages are justified from the humanitarian view point and labour is justified for agitating for “minimum wage”.
A reasonable standard of living should be permitted to the employee from the standpoint of employee’s health and well-being and the nature of his work.
The report of the Committee on Fair Wages has defined minimum wages as, “the wage which must provide not only for the bare sustenance of life, but for the preservation of the efficiency of the worker. For this purpose, the minimum wage must provide for some measure of education, medical requirements and amenities”.
The principles for determining minimum wages evolved by the government of India have been incorporated in the Minimum Wages Act, 1948. This piece of legislation seeks to avoid exploitation of workers by underpaying them for their efforts.
Though it is a central legislation, it is implemented by both the central and state governments in their respective spheres. The Act provides for the computation of the cost of living allowance and cash value of concessions like essential commodities supplied.
The Act also lays down penalties for violation. The main advantage of fixing a minimum wage is that it prevents exploitation. A possible disadvantage is that the fixing of a minimum wage may result in making it the maximum wage.
2. Fair Wage:
One way of looking at fair wage is that it compares reasonably with the average payment for similar work in other trades or occupations requiring the same amount of ability. According to the Committee on Fair Wages, – “it is the wage which is above the minimum wage but below the living wage”.
The Committee on Fair Wages further says that “while the lower limit of the ‘fair wage’ must obviously be the minimum wage, the upper limit is set by the capacity of the industry to pay. Between these two limits, the actual wages will depend on:
(i) The productivity of labour;
(ii) The prevailing rates of wages;
(iii) The level of the national income and its distribution; and
(iv) The place of the industry in the economy of the country”.
3. Living Wage:
The objective of minimum wage legislation was mainly to improve the standard of living of persons whose wages were very low and thus avoid the evils of sweating labour.
From this view point, a living wage is a wage which provides the worker with a standard of life furnishing him with necessities of life plus certain amenities considered necessary for the well being of the worker determined in terms of the position of the worker in a particular denomination. Living wage is the ultimate goal in a wage policy.
According to the Committee on Fair Wages, a living wage is – “one which should enable the earner to provide for himself and his family not only the bare essentials of food, clothing and shelter but a measure of frugal comfort, including education for his children, protection against ill-health, requirements of essential social needs and a measure of insurance against the more important misfortunes including old age”.
Living wage is the highest among the three concepts of wages. The concept of living wage is not a static concept. It is an expanding concept which grows with the growth of the economy and is bound to vary from time to time and from country to country.
The Committee on Fair Wages is of the opinion that the provision of a living wage should be the ultimate goal.