Trends in Minimum Wage Laws and Implementation Experiences of selected Asian Countries (& Case of India) Biju Varkkey Faculty, HRM Area Indian Institute of Management Ahmedabad, India Rupa Korde Faculty, Economics Area FLAME University Pune, India Sunny Wadhwaniya Research Associate, Indian Institute of Management Ahmedabad, India www.iima.ac.in www.flame.edu.in www.paycheck.in www.wageindicator.org

Introduction The Concept: Minimum Wage The minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract (ILO). Why Minimum Wage matter? An effective tool to reduce wage inequality and poverty To safeguard the income and provide decent standard of living to low skilled workers Minimum Wages Legislations are crucial: Protection for low-wage workers Ensure payment of fair wages Provide a basic floor wage Instrument of macroeconomic policy

Select Literature Review 1 Jones 1997; Strobl & Walsch, 2001 They note that the presence of legal mechanisms does not guarantee an effective implementation of minimum wage policy in a country. In order to have an effective implementation of the minimum wage policy, the traditional top down approach, found in most legal mechanisms should be avoided 2 Raustiala & Slaughter, (2002) The authors argues that if the implementation of minimum wage legislation is effective, it will automatically lead to a better compliance of minimum wage legislation in a country 3 Benassi (2011) Has identified and evaluated various MW implementation schemes. Emphasised that the issue of MW implementation is considered important both at the academic and political levels. Pointed out the documenting the issues faced during implementation and compliance of the policies are ignored. 4 Ra, (2014) Has presented major trends and issues of MW implementation in major South-East Asian countries. The major finding of the study is; political and non-economic factors do play a major role in the implementation of MW regulation. 5 Bhorat, (2014) Identified one of the major issues related to enforcement and compliance of minimum wage regulation is ‘measurement’ particularly the measurement of noncompliance and enforcement. The study suggests that there should be an index of minimum wage violation which would enable policymakers and researchers to analyse the level and depth of non-compliance. However, better compliance and enforcement is very difficult when minimum wage regulations are complex. 6 Varkkey (2015) The study looks at the implementation of MW Act in India. It notes that the implementation of the MW act is problematic because of its highly complex structure, albeit the fact that there are institutional mechanisms to ensure payment of wages, but the effectiveness of those mechanisms is rather questionable.

Research Gaps Many Asian countries are largest single contributor to global growth (60% as per ADB, 2017). In spite of such unparalleled growth, labour advocates are struggling to ensure protection of workers’ rights, including providing them with minimum wage Vast differences in the minimum wage policies and regulations, as well as implementation difficulties. Hence, in most of Asian countries, minimum wage systems have been a subject of debate and criticism owing to its complicated structure. The major reason for such complexities may be found in the foundation of minimum wage systems, i.e. minimum wage fixing procedure and criteria used. Large body of research on the trends in implementing minimum wage regulation in developing countries. The studies covered few parameters - hence they’ve failed to provide a holistic solution. Few studies (Upadhyaya,2012; Ra,2014; Ford, 2017) have addressed the aforementioned issues in Asian Countries. This gap in literature has prompted our study. Comparative analysis of minimum wage laws and implementation mechanisms in Asian Countries under the WageIndicator project, i.e. including Cambodia, China, India, Indonesia, Pakistan, Sri Lanka and Vietnam are covered.

Inputs from Country Teams from 7 countries covered in this study Methodology Used data / information available from WageIndicator.org Minimum Wage Database Inputs from Country Teams from 7 countries covered in this study Desk research by Paycheck India team Dichotomous Coding (Y / N) for each parameter under consideration Development of a grid www.wageindicator.org www.paycheck.in

Sri Lanka India Pakistan Vietnam Cambodia Indonesia China 1941 1948 Evolution of Minimum Wage Legislation in Asian Countries Sri Lanka India Pakistan Vietnam Cambodia Indonesia China 1941 1948 1961 1994 1997 2003 2004 Sri Lanka Wage Ordinance Board India Minimum Wages Act Pakistan Minimum Wage ordinance Labour Code Cambodia Labour Law provision on Minimum Wage Legislation on Minimum China Provision on Minimum 2016 2017 2018 2012 - National Minimum Wages Act No. 3 Budgetary Relief Allowance of workers Act No.4 The Code on Wages Bill Sindh Labour Policy Vietnam Labour Code (amended) National minimum wage law

Types and Combinations of Minimum Wage Fixing approaches/methods Minimum Wage fixing method in Asian Countries Types and Combinations of Minimum Wage Fixing approaches/methods One minimum wage rate for the entire country or bipartite/tripartite body as decision making body Multiple minimum wage rates for sector and/or occupation, agreed by State or Bipartite/Tripartite body One minimum wage rate for the country agreed by the process of collective bargaining Multiple minimum wage rates for sectors and/or occupations agreed by the process of collective bargaining

Parties involved in Minimum Wage Fixing and Adjustment Minimum Wages fixed by Government Minimum Wages fixed by specialized bodies Other procedures (Collective Bargaining) Minimum Wage Fixing Body No obligation to consulting partners After direct consultation with social partners After recommendation / advice from social partners Role of Social Partners Countries

Specialized Bodies Involved Specialized bodies involved in Minimum Wage Fixing Process Country Specialized Bodies Involved Cambodia Labour Advisory Committee (tripartite) China China Entrepreneur Association All-China Federation of Trade Unions India Advisory Board and Committees (bipartite) Indonesia National Wage Council (Provides national wage policy advice - tripartite) Provincial Wage Councils (Advise provincial governors, who determine minimum wages - tripartite) District/City Wage Councils (Advise provincial governors, who determine provincial minimum wages - tripartite) Pakistan Provincial Minimum Wages Boards (bipartite) Sri Lanka Wages Boards (Workers in certain trades) Remuneration Committees (tripartite) Vietnam National Wages Council (tripartite) Source: Varkkey, Korde & Singh,2016

The Criteria for Fixing Criteria for Minimum Wage fixing in Asian Countries: Criteria considered in determining the level of Minimum Wages (ILO Minimum Wage Fixing Convention, 1970 (No.131,Article :3) Criteria for fixing Minimum Wage fixing in Asian Countries Social Group: Considers the basic needs of the workers. The needs of workers and their families General level of wages in the country Relative living standards of other social groups Social security benefits Economic Group: Considers the country’s economic constraints. Economic development Productivity of the workers The Criteria for Fixing

Legal Criteria for Minimum Wage fixing in Asian Countries: Cost of living index Level of Wages Needs of Workers & their families Level of Employment Social Security Benefits Productivity of Labour Enterprises' ability to pay No set criteria

Present status of selected Asian Countries Frequency of Minimum Wage Adjustment: ILO Convention No. 131 (Article 4): - Minimum Wages should be "adjusted from time to time” ILO Minimum Wage Fixing Recommendation, 1970 (No. 135) :- “Minimum wage rates should be adjusted from time to time to take into account changes in the cost of living and other economic conditions.” In principle, this revision can take place “either at regular intervals or whenever such a review is considered appropriate in the light of the variations in a cost-of-living index”. Present status of selected Asian Countries Annual Adjustment Every 2 years or more Flexible

Some Interesting Facts about Minimum Wages in Asian Countries: In Vietnam, there are two types of MWs; general MW for public servants & armed forces and the regional MW for private & other sectors. Since, 2010, Vietnam has a universal coverage of MWs for all workers; including informal workers. Some Interesting Facts about Minimum Wages in Asian Countries: China does not have a national MW rate, instead MWs are set at province & sectoral level. Pakistan are MWs at provincial & occupational level. In India the MW is set as per piece rate, monthly, daily and hour rate. It is decided on a central, regional, & sectoral level. India has about 1700 MW rates. In Cambodia, MWs are set for all apprentices, probationary & regular workers. MW only for garment & footwear sector In Indonesia, provincial MW is set based on the negotiations & agreements between three key actors, i.e., corporate organizations, trade unions & the Governor. In Sri Lanka, MWs are set as per sector & industry by Wage Boards Sectors that are not under the Wage Boards are not covered by MWs MWs have not been revised for almost a decade

Reforms in Minimum Wage framework in India Case study of Wage Code Bill, 2017 Aims To ensure a universal MW for all industries & workers. To improve the living standard of workers Coverage All industries & workers, including those getting higher than INR 18,000 (irrespective of workers' pay) 40 crore (140 million) workers will be covered Implementation 44 different labour laws will be condensed into 4 sections wages industrial relations social security & safety health & working conditions Amalgamation Bill seeks to amalgamate 4 laws Payment of Wages Act 1936 Minimum Wages Act 1948 Payment of Bonus Act 1965 Equal Remuneration Act 1976 (+) Impact Will generate employment & attract entrepreneurs Simplify understanding of MW in India (-) Impact Steep hikes in wage rate might have a negative impact on hiring in tier II & tier III cities Hiring at entry level might be hindered due an increase in compensation cost to the companies

Conclusion There are sufficient commonalities and differences that could be observed in the minimum wage fixing criteria and procedures among the seven countries. Even though Asian countries share some commonalities in terms of minimum wage fixing methods and background, diversity exists among them at various levels. The one positive trend seen in all countries is that they believe in minimum wage to be a powerful labor market stabilizing tool and have adopted suitable methods that allow labor and employer representation in the fixing process. The negative trend of this is seen in the declining involvement of Trade Unions along with the fading use of collective bargaining as the mechanism for minimum wage fixing.

Thank You Sunny Wadhwaniya Research Associate, Indian Institute of Management Ahmedabad, India paycheckdata@iima.ac.in Biju Varkkey Faculty, HRM Area Indian Institute of Management Ahmedabad, India bvarkkey@iima.ac.in Rupa Korde Faculty, Economics Area FLAME University Pune, India rupa.korde@flame.edu.in www.iima.ac.in www.flame.edu.in www.paycheck.in www.wageindicator.org

Description Countries Commonalities and Differences in selected Asian countries: Indicators Description Countries History of development and the colonial background Not all the seven countries share the same colonial background India and Sri Lanka are early adopters of minimum wage system China being possibly among the last adopters of minimum wage system Presence of multiple wages Different wage rates for different regions China & Indonesia Different wage rates for different sectors and occupations Cambodia Regional, Sectoral and Occupational wage rates India, Pakistan and Sri Lanka Setting of minimum wage rates MW is fixed by Government or bi/tripartite bodies China, Cambodia, Indonesia, India, Pakistan, Sri Lanka Collective bargaining India and Pakistan Criteria for fixing minimum wage Needs of workers and their families Cambodia, Indonesia Cost of living Cambodia, China, India, Indonesia, Pakistan, Sri Lanka Level of wages and income in the country Cambodia, China Social Security benefits Economic development Cambodia, China, Indonesia, Pakistan Inflation rate level of employment Cambodia, China, Indonesia Periodicity of minimum wage revision Annual Adjustment - Once every two years China, Pakistan Specific time period for adjustment Once in five years India No Schedule frequency of adjustment identified Indonesia, Sri Lanka Source: Varkkey, Korde & Singh,2016