Cash in on Wages Bill

CoW Bill presents a great opportunity to correct wage stagnation and build demand for skills among youth

By Author T Muralidharan   |   Published: 15th Sep 2017   12:04 am Updated: 15th Sep 2017   2:39 am

In my two-part article earlier in this column (on Aug 28 and 29 –, I had argued that the current minimum wages implementation has failed and the cost of this failure is being borne by workmen through stagnant wages for over 12 years because of our unique skill market conditions, where the supply far exceeds the demand.

The Code on Wages or CoW Bill presents a great opportunity to not only correct the wage stagnation but also to build a demand for skills as well as Recognition of Prior Learning (RPL) in skills among the youth.

Dipping Demand

The following are three reasons for low demand for skills among youth:

Wages are low: Most of the jobs are in cities and require youth to migrate. The current wages are not enough to cover their costs and hence most end up borrowing from parents and co-workers. This is the reason for low retention in post-skilling jobs.

Skill premium is low: According to the Maharashtra minimum wages notification effective July 1, 2017, the skill premium measured by the difference in the minimum wages for unskilled and semi-skilled (for example in the engineering sector) is as low as 5%. Obviously, there is no incentive to undergo skill training.

No employment preference for skill certification: Skill certifications have no legal standing vis-a-via employers and hence cannot be enforced. This is a big obstacle in drumming up demand for skills.

The RPL programme attempts to identify skilled craftsmen and youth who are not certified and encourages them to take an assessment and get certified by the Skills Ministry. This is also yet to take off for identical reasons cited above.
How CoW Bill Can Help

Step 1: Revise the minimum wages substantially for semi-skilled and skilled categories. The revision can be far less for unskilled.

The CoW Bill plans to revise minimum wages through a National Floor Level Wages (NFW) model and to streamline the extrapolation of minimum wages across sectors and geographies. A committee has been appointed to arrive at the NFW and it is believed that the NFW will be increased significantly to offset the low stagnant wages.

Though experts believe that market should determine the wages, I believe this is only valid in a perfect market. Let me cite an example where this wisdom has not been adopted but the results have been dramatic and beneficial to the nation — Dr Kurien and Amul decided that milk producers will create a producer’s cooperative that will determine the prices and that the prices must be remunerative to the milk producers. This resulted in the Indian milk revolution.

The skills market is also imperfect. The supply is far more than the demand and will continue to be so because of the demographic dividend. So the wages, which are determined by the demand-supply gap, have stagnated.

The Minimum NFW

As per 7th Pay Commission report, the minimum salary of Central government employees may be raised to Rs 21,000 per month from the existing Rs 18,000 per month. It is an irony that the government pays its employees much more than the market. Though this is a data point, the new NFW has to be far less.

The current (effective July 1) minimum wages in Zone 1 for the unskilled category in Maharashtra varies from Rs 8,033 to Rs 12,450 per month.

The new NFW to be defined by the committee will be, in my opinion, somewhere between government employees’ minimum wages and the current levels, at around Rs 14,000 per month. But there will be a lot of reactions against the upward revision on the grounds that the business cannot absorb this increase, especially the MSME sector.

So, the first step is to revise the NFW of only the semi-skilled and skilled upwards significantly. The NFW of the unskilled should be revised upwards at much lower rates than the semi- skilled.

For example, the minimum NFW can be fixed at Rs 14,000 for semi-skilled and the unskilled NFW could be at Rs 11,000 per month. The skilled NFW may be at Rs 18,000 per month. This will be acceptable to the employers because the semi-skilled and skilled numbers are very small compared with the unskilled numbers.

This will also create a skill premium of over 27% without upsetting the employers.

Step 2: Define skill certification as one of the indicators for semi-skilled and skilled wages in the CoW Bill, thereby legitimising the skill certification.

Skill certificate has to be at a level specified by the Skill Ministry (say level 5 of the National Occupational Standards for semi-skilled and level 7 for skilled). Automatically this will drive the demand for skill certification. A bigger benefit will be the demand for RPL.

Step 3: The CoW Bill should specify that inexperienced fresh students certified by the Skills Ministry will be paid 5% less than the semi-skilled. This will create a sustainable wage for the migrating skill certified students.

Step 4: Like skill certification, link apprenticeship programmes to semi-skilled status at the end of the first six months of the apprenticeship programme. This will mean that the government reimbursement under the apprenticeship programme will be at the semi-skilled wages. This will drive demand for apprenticeships among students.

Step 5: Ensure better implementation of the CoW Bill by encouraging skill students to share their compensation data online on the Labour Ministry portal. This will highlight the defaulter employers so that corrective steps can be taken.

Step 6: Initiate a Skill Wage incentive programme to refund 25% of the applicable minimum wages to SMEs who employ fresh certified skill trainees for a period of six months. The payment must be directly made to the employer similar to the current apprenticeship scheme. This will encourage the SMEs to employ fresh certified youth and give them six months to realise the full productivity.

The CoW is a golden opportunity that should not be missed.

(The author is Chairman, TMI Group, and Independent Journalist)