Wage Determination

Wage Determination Semester III Chapter-3

Wages 

Means any economic compensation paid by the employer under some contract of employment to his worker for the services rendered by them.

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Basic wage is the remuneration paid or payable to employees under a contract of employment Allowances, on the other hand, are paid in addition to basic salary benefits, etc

The following types of remuneration paid do not amount to wages under any of the act  

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Bonus Value of any house accommodation, supply of light, etc Contribution to pension, PF

Wage Policy in India    

Workmen’s Compensation Act, 1923 Trade Union Act, 1926 Payment of Wages Act, 1936 Industrial Dispute Act, 1947

Objectives of national wage policy    

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To ensure a living wage for workers To ensure equitable pay for equal work To end equitable pay for equal work To end exploitation and provide remuneration to capital and labour To fix statutory minimum wages in selected industries and promote fair wage agreements in the organized sector

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To compensate for rise in the cost of living by linking wages with inflation and geographical area. To provide for reasonable wage differentials to reflect differences in education, skills. job responsibilities and nature of job. To ensure equitable distribution of national income and avoiding the concentration in the hands of a few rich people.

Industrial Truce Resolution, 1947 

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Fixation of statutory minimum wages in sweated industries. Promotion of fair wage agreements in the more organized industries.

Fair Wage Committee 

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Was constituted in 1984, consisting of representative of employers, employees and the government, to enquire into and report on the subject of fair wages to labour. Three different levels are identified   

Living wage Fair wages Minimum wage

Minimum Wage 

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Lowest hourly, daily or monthly wage which is sufficient to cover the necessities of worker and his family. In September 2007, the national minimum floor level wage was increased to Rs 80 per day for all scheduled employments from Rs 66 in 2004 to Rs. 45 in 1999, Rs. 40 in 1998 and Rs. 35 in 1996. Note:'Scheduled employment' as meaning an employment specified in the Schedule and "Employment under any local authority" is included as item 6 of tho schedule. [326 B-G]

In calculating the minimum wage  

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The standard working class family should be consist of 3 consumption unit for one earner Minimum food requirement should be calculated on the basis of net intake of calories, foe an average adult moderate activity. Clothing requirement should be estimated at per capita consumption of 18 yards per annum. In respect of housing, the rent corresponding to the minimum area provided for, under gov. industrial housing scheme, should be taken into consideration. Fuel, light, other misc item of expenditure should consitute 20% of the total minimum wage Children education, medical, marriage, etc constitute 25% of the total minimumwage

Fair wages 

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The lower limit of the fair wage is the minimum wage and the upper limit set by capacity of the industry to pay. It should depend on a consideration of the following factors:  

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The productivity of labour The prevailing rate of wage in the same occupations in the same neighboring localities. The level of national income and its distribution The place of industry in the economy of the country

Living Wage 

Should enable the earner to provide for himself and his family, ( not only) the bare essentials of food, clothing and shelter, but (also) a measure of frugal comfort including education for te children, protection against ill-health, requirements of essential social needs and a measure of insurance against the more important misfortunes old age

Wage Determination Process Review of Organization Strategy

Fine tuning rates of pay

Wage & Salary administration

Devising compensation Policy

Grouping similar jobs into pay Grade and pricing each pay grade

Job analysis & Evaluation

Analysis of internal & external factors

Review of organization strategy  

Maturity stage of organization Line of business of the organization

Devising compensation policy 

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Includes criterion used for determining base and supplementary compensation Based on principles of objectivity, fairness, equity and adequacy Should be able to attract competent people, retain them and motivate them.

Job analysis and evaluation  

Job Description Job Specification

Analysis of both external & internal factors 

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Internal factors include organization ability to pay, job characteristics, performance level, etc. External factors include the pressure of trade unions, compensation offered in related firms, cost of living, etc.

Group similar jobs into pay grades and pricing each pay grade 

Wage curve depicts the relationship between: 

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Value of job as determined by job evaluation method Current average pay rates being paid for jobs in each pay grade. Wage rate

Wage Curve

Pay Grade

Factors Influencing compensation policy 

External factors      

Cost of living Labour unions Collective Bargaining Government Legislation Society & Economy Labour Market  

Supply & demand of labour Prevailing market Rate

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Internal Factors      

Organization's ability to pay Business Strategy Managerial Attitude Job level requirements’ Organizational Policies Employee Related factors

Theories of wages        

Subsistence theory of wages Wage fund theory Surplus Value theory of wages Marginal productivity theory Residual claimant theory Investment theory of wages Bargaining theory of wages Behavioral theories

SUBSISTENCE THEORY OF WAGES The theory is based on few assumptions:  Law of diminishing returns apply to industry  Population increase or decrease on the basis of subsistence wages paid to workers  Demand for labour is constant  There is largely no wage differentials on the basis of efficiency of workers.

Short run wage curve Long run wage curve

Wage fund theory 

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There are two things that is determined by magnitude of wage: Demand for labour Wages paid to labour. Higher the fund, higher would be the demand for labour and wages paid to them and vice versa

Surplus value theory of wages  

Worker was an article of commerce Price of any product is determined by labour time needed for producing it

Marginal productivity theory 

The wage level is fixed at a level where marginal productivity of labour is equal to its marginal cost.

Residual claimant theory 

Wages = value of production – ( rent + interest + profit)

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Investment theory Bargaining theory

Behavioral theories    

Employer’s concern for workers Employee’s acceptance of wage level Internal wage structure Wages and other motivators

Wage boards 

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A voluntary association of organized employers and employees for negotiating on wages, working hours and related conditions of employment. A body set up by law or with legal authority to establish wages and other standards of employment which are then legally enforceable in the particular trade or industry to which the decision relate.

Composition of wage boards   

Chairman 2 or more independent members 2 or 3 representative each workers and employers

Types of wag board  

Statutory wage boards Non – Statutory Wage Boards