Here is a compilation of essays on ‘Wages in India’ for class 11 and 12. Find paragraphs, long and short essays on ‘Wages in India’ especially written for school and college students.
Essay on Wages in India
Essay Contents:
- Essay on the Origin of Wages in India
- Essay on the Definition of Wages
- Essay on the Evolution of Wages in India
- Essay on the Truck System of Wages in India
- Essay on Wage Determination in India
- Essay on the Evolution of Social Security and Fringe Benefits as Supplements to Wages
- Essay on Money Wages and Real Wages
- Essay on the Wage Policy in a Planned Economy
- Essay on the Wage-Employment Relationship in India
- Essay on the Effects of Regional Variables on Wage
Essay # 1. Origin of Wages in India:
In tracing the origin and evolution of the idea of wages, one may identify the system of slavery and forced labour in primitive societies where payment of labour was made in kind the first form of wages. The next stage developed in the form of high proportion of payment in kind and the balance in cash.
Aristotle’s analysis of the theory and practice of slavery as forced labour in ancient Greece and Rome bore testimony to this form of wages. In marry primitive communities slave labour was not paid any wages as understood now, but was provided with food and other basic needs by their owners.
The slaves were administered mostly brutal punishment and sometimes well treatment according to the nature and attitude of the owners.
In some countries, many workers were employed as serfs who were tied to the land and served on a share basis, receiving a certain part of the crop in return of their labour. Even where workers were free to change their employer, they were often hired for long periods of a year or more, receiving little or any money for their work, but were paid in kind that is provided with food, accommodation etc.
This type of wage system still persists in many backward areas of Asia, Africa and Latin America.
Essay # 2. Definition of Wages:
Wages refer to earnings of labour. Wage generally refers to direct monetary compensation, payments to hourly rated production and services of workers. Wages are distinguished from salary, which is paid to administrative, professional and managerial employees on a monthly or annual basis.
Those who receive wages have usually no guarantee of continuous employment. Earnings are distinct from wages which represent combination of several rates such as overtime, incentive pay, hazardous duty pay or premium for working weekends, bonus, dearness allowance.
Real wages denote the purchasing power of money payments which are calculated by dividing rupee amounts by an appropriate cost of living on price index. Disposable income is money payments minus taxes and other deductions. There are four principal types of wage rates, they are-(i) Time rates (ii) Piece rates (iii) Incentive wages (iv) Commissions.
Wage rates are often described as job rates. Rates are established for each job and all workers in the same job receive similar rates. Rate ranges are identified for each job or class of jobs. Progression in each range may be based on merit, efficiency on personal ratings assured by a system of automatic progressions.
Rates and rate changes create wage and salary structures within individual firms and industries. Wages in these structures vary from lowest to highest and the total pattern at any time may be one of few or many levels. The internal wage and salary structure of a firm may be defined in terms of labour grades, with a flat wage rate or range of rates for each grade.
Each labour grade may be applicable to a number of jobs in various departments. The wage and salary structure in an industry or a plant is the hierarchy of rates, from the lowest-paid common labour to the most highly skilled and managerial workers. In such a structure, wage differentials represent the amounts by which each level of wages exceeds those below it.
With a view to understanding different aspects of wages in practice in India, it is necessary to have critical ideas about some important theories and the evolutionary process of wages. Because theories of wages symbolize the concept, the reasoning and the thinking pattern of human intellect or rational principles which may underline the determination, fixation and payment of wages.
Essay # 3. Evolution of Wages in India:
In exploring the evolution of wages, it is well to remember that the concept of industrial wages as distinct from agricultural wages forms the core of modern wage concepts, theories and practice, which are related to factory system and the process of industrialisation in the context of labour economics.
However, gradually with the growth of Industrial Revolution in the 18th century, the whole or major part of wages were started to be paid in cash, and workers were free to buy their food and other necessities at current prices from shops and markets.
The workers were also starting to enjoy certain amount of mobility as they were free to change their jobs with due notice to their employers. The employers also could dismiss inefficient workers or reduce redundant workforce subject to certain conditions.
In middle ages, in times of labour shortages and in medieval cities, the labourers and craftsmen of the guilds enjoyed more flexible conditions of employment and wages than workers in agriculture and other rural occupations.
Essay # 4. Truck System of Wages in India:
During the early period of Industrial Revolution of the 18th century, large number of workers left their rural homeland to find employment in factories in cities attracted by higher wages and greater freedom of employment. This period may be considered as the era of mixed wage payment system, both in kind and in cash.
This was because rural migratory labour, accustomed to payment of wages in kind in their rural setting, were easily induced by the industrial employers to receive part of their wages in essential commodities, like potatoes, flour, sugar etc. and the balance in money.
This perspective gradually gave rise to the development of truck system, according to which tickets or coupons were issued by employers to workers entitling workers to obtain specified quantities of these consumer goods from stores or shops managed by employers.
Another form of this system was for a worker to be paid part of the goods he had helped to produce, whether he needed such goods or not. But, this system came to be abused seriously as the employers began to supply inferior qualities of goods to workers, less in value than the wage justly due to the workers.
The system also led to profiteering by employers at the cost of work people, and the workers were denied the freedom what to buy and how to buy. In many countries, to check the abuse, legislation was passed requiring employers to pay wages in money without restricting workers freedom as to how to spend them, and to pay in kind if it benefits the workers.
Essay # 5. Wage Determination in India:
It is this tool which can be used to identify the major ‘ideal types’ of labour market situations within the economy of a country. This, in itself, is a very big task, requiring sustained research into the socio-economic structure of the different labour markets within an economic system.
Needless to say that such an attempt cannot be thought of here, and the purpose is only to point out to a new method of approach to the study of labour markets and wage determination in India.
However, by way of illustrating the application on the ‘ideal type’ method, some major labour market forms operating in India are tentatively listed below, which could be distinguished from each other according to their social, cultural, economic, technological and organisational features.
These could then be idealized into ideal typical situations for the purpose of economic analysis, particularly in respect of wage determination. This classificatory scheme is only suggestive and illustrative, and in no way pretends to be exhaustive.
It would be extended, re-organised and reformulated by others who could certainly improve upon it. The aim is only to point to a new direction in the analysis of plural labour markets in the field of wage determination in developing economies.
Some major ‘types’ of such markets in India are mentioned below:
(1) The multinationals’ super market.
(2) Progressive modern industry market.
(3) Traditional orthodox industry market.
(4) The public sector labour market:
(a) The administrative and services sector.
(b) Industrial sector.
(5) Small scale and unorganised industry market.
(6) Labour market for dispersed industries like mines, plantations etc.
(7) Agricultural sector labour market.
This classificatory scheme is suggestive of different characteristics of each market situation which could be delineated only by a thorough and painstaking study. However, the aim here is to suggest a framework within which meaningful analysis of wage determination and formulation of policy programmes could be possible.
The multinational labour market is the topnotch market, with high wages, international levels of efficiency, management and organisational expertise, and a highly westernized cultural environment. The market provided by the progressive and efficiently run industries in India may be placed next in order of excellence.
Here the management and personnel policies are modern and progressive, general wage levels higher and better organised than in the rest of Indian industry with labour usually receiving a fair deal.
Possibly next in order could be placed the traditional industry labour market, where labour and management policies are rather conservative, personnel management not very scientific, general wage levels lower than the first two sectors, and labour relations not always cordial. Almost on the same level could be placed the public sector in India, which has at least two major sections.
One sector provides administrative and other service, and which has fairly long established traditions of work routine, but where efficiency in the business sense does not exist. The other is the public industrial sector, which, though for the most part relatively new, is not very well up in modern management practices and efficiency, and in some cases has largely produced waste and inefficiency.
The wage level here may be roughly comparable to the level of traditional industry, with both administrative and industrial sectors being run largely on the lines of general administrative procedures rather than modern business management techniques.
Both these public sector markets show employment of labour often much above the requirements, and are marked by a fair amount of uniformity in wages, bonus, dearness allowances etc.s
These may be paid but with little reference to productivity or profitability of the service, industry or plant. Below this, we have small scale and unorganised industry market, where wages are low, management practices informal due, in many cases, to the small size of units often run by a family or families.
There may be poor working conditions and not always full compliance of the maximum legal requirements of the conditions of work and wages.
Labour market of mines, plantations etc. may be placed almost on the same level as labour market in agriculture because of indifferent conditions of work, wages and living, and very little legal protection which is often ineffective due to dispersed nature of the industry. These conditions also make collective bargaining and union activity more or less impractical.
Lastly we have the vast agricultural labour market, with traditional ways of work, proverbially low wages, unorganised labour, a lot of disguised unemployment, and practically no influence of legislative measures and administrative controls, which fail to reach out to the country side.
Even a mere mention of these general characteristics in a rather casual way shows that each type represents a different market situation and provides a different wage determination frame-work, which can be marked out from the rest in the matter of its performance and functioning.
Different factors will dominate the wage determination process in each of these, and the difference in their levels of efficiency and performance will tend to maintain the differences in their wage and salary structures as long as the sectors lower down do not pick up efficiency and come up to the higher level sectors. The social and cultural climate of these markets is also different to a marked degree.
Under these conditions, we cannot have general rules of wage determination for all these different labour markets, as the forces dominating each are different. This also points to the need for different policy progranmes for these different markets, as they do not really require a uniform wage or labour policy.
In such a context, a national wage policy, for example, would appear to have little meaning. Even if we have such a uniform wage policy for the entire economy, it would have to be diluted to such an extent as to make it lose all meaning and practical significance.
However, the overall aim of economic policy should not be to perpetuate these differences, but to go forward with economic development so that this pluralism gradually becomes less marked, and a more homogenous labour market gradually develops.
The entire elimination of pluralism is possibly not a practical proposition, but policy progranmes must aim at gradually lessening the contracts and creating a more integrated labour market.
Essay # 6. Evolution of Social Security and Fringe Benefits as Supplements to Wages:
In the early days of Industrial Revolution in the 18th century in advanced countries and also, in recent times, in underdeveloped countries, workers from villages, newly employed in factories,- mines plantations unaccustomed to money wage system, had the tendency to spend the entire amount of their wages on consumption without any provisions for future security and uncertainty of work life.
To protect workers from such insecurity, employers and also government in many countries gradually began to provide subsidized food, housing, recreation and medical facilities, paid holidays, bonus etc. through comprehensive social security system and fringe benefits reinforced by legislations.
These were treated as supplements to wages increasing labour costs. In many countries, fringe benefits are now being provided on the basis of collective bargaining.
There is wide variation in the relative value of wages to fringe benefits and the resultant labour mobility from country to country. Between 1959-1977 the ratio of supplementary charges to earnings rose in Sweden from almost 1:9 to 4:6 and in Belgium and Netherlands from 2:8 to 4:6; and in the U.S., from 17% to 25%.
Essay # 7. Money Wages and Real Wages:
Wages refer to earnings of labour. The quantity of money that is earned by labour during a period is money wages of labour. And the real wage means the quantity of necessaries and conveniences of life which labour actually earns and enjoys by his quantity of money earnings.
Real wages depend on:
(i) The amount of money or nominal wages;
(ii) The purchasing power of money;
(iii) The excess of non-monetary advantages over the non-monetary disadvantages of a given employment of labour.
Other things being equal, the real wages will tend to be higher, the greater the amount of the money wages; and real wages will be higher, the lower the cost of living, and the real wages will be lower, the higher cost of living. This comparative situation of wages also takes into consideration the relative advantages and disadvantages of occupations.
Thus, according to Adam Smith, “The labourer is rich or poor, is well or ill rewarded, in proportion to the real, not to the nominal price of this labour.”
In the context of Five Year Plans, deficit finance has assumed critical proportion both in financing successive plans and deficit annual budgets of both Union and State Government. This has resulted in serious inflation and continuous erosion of purchasing power of money, i.e., value of money.
The Governments have adopted various price control measures, both monetary and fiscal and also are paying dearness allowances, house rent allowance, city compensatory allowance and other compensatory allowances to maintain real wages of employees.
To maintain the real wages of labourers in the face of inflationary price rise, payment of wages in kind has been prevalent in India since the British regime. During the Second World War employees of Indian Railways were supplied with essential foodstuff at subsidized prices.
After Independence, the payment of wages in kind continued to prevail in certain limited industries, especially in sweated backward industries, in the tea plantations, and in agriculture as a part of minimum wages under the Minimum Wages Act, 1948.
The relevant provisions of the Minimum Wages Act, 1948 provide payment of wages in kind, wholly or partly, particularly supply of essential commodities at concessional rates. According to the Rules of Minimum Wages (Central), 1950, the mode of computation of the cash value of payment in kind and of essential commodities supplied at concession rates will be on the basis of the retail price at the nearest market.
Essay # 8. Wage Policy in a Planned Economy:
Since Independence, wage policy in planned economy of India has posed a number of constraints as well as prospects. There are constraints which are primarily a legacy of the past British regime, viz., low labour productivity, poor standard of living and illiteracy of workers, inflation, poor commitment and politicization of trade unionism and the lack of rational wage fixation principles and machinery.
In essence, these were the consequences of colonial exploitation. After 1947, prospects of a new wage policy in the context of Five Year plans under planned economy had opened new vistas of prospects and hopes, though the constraints of the past are still socio-economic hangover.
The complexity of wage policy in India arises out of the multidimensional aspects of conflicting claims of other factors of production, besides labour, in national income. Formulation of national wage policy is yet another prospect of advancement though it has not yet been achieved.
Incomes policy also must be considered as important adjunct of wage policy. Determination, fixation and payment of wages call for not only rational and pragmatic principles but also permanent machinery. Closely connected with economic aspects, socio-psychological and political dimensions pose synchronization of state action, public policy as well as management policy both at macro and micro level.
To sun up, the problem of wage policy in India has assumed very complicated magnitude defying permanent solution because of the vast diversity of elements that constitute inter-industry wage structure, wage differentials, wage levels, wage price-profit relationship and wage legislations.
Essay # 9. Wage-Employment Relationship in India:
There are three important aspects of wage-employment relations in developing countries. The first and more familiar wage-employment relation is the effects of wage rise on the level of unemployment and employment in less developed countries.
The second aspect pertains to the rural-urban wage-differential which determines the rates of rural-urban migration and consequently also the rates of employment generation in the modern sector of the urban economy.
In this connection, Michael Todaro’s model of wage-employment relations in developing countries may be an appropriate method. The third aspect of wage-employment relation is concerned with the policy-determined linkages approach between employment generation and eradication of poverty and low levels of living among the rural and urban workers in developing countries.
Changes in money wages and their economic effects on the levels of employment pose special problems in the over-populated, labour-surplus, developing countries like India. It is often argued that high money wages result into unemployment among the workers of the less developed countries. The argument is often based on the Ricardian logic of wage-employment relations.
It is said that a rise in the money wages would increase the wage-costs and the total cost of production. Hence the higher money wage can be paid only at the expense of the total economic surplus which measures the differences between the net value of output and wages.
If higher wages lead to the diminution in the size of the total economic surplus, the economy’s potential for job generation in future will be severely eroded by wage rise. Moreover, it is said that wages may affect employment not only through its repercussions on the available economic surplus, but also because a rise in the wage costs may lead to the adoption of the labour-saving technology.
The adoption of the labour-saving or capital-using technology would adversely affect employment of the workers. Further, the wage rise would entail the closure of inefficient units of industries and hence there would be a net increase in unemployment in labour-surplus developing countries. Their arguments about the adverse effects of wage rise on employment merit closer discussions.
The Ricardian logic of wage-employment relations is based on the existence of the perfectly competitive commodity and labour markets and also on the fundamental classical assumption of the full employment. Both the commodity and labour markets in the developing countries are relatively more imperfect than those in the developed countries.
Moreover, a wage rise may squeeze the recent element or unearned income in the profit and therefore it may not necessarily erode the true economic surplus. Additionally, the effects of a wage rise on the consumption demand, health, efficiency and productivity of the working class are totally ignored in discussing the links between higher wages and lower Volumes of employment.
There might arise the possibility of adoption of labour-saving technology consequent upon the higher wage demands. But it all depends on the fact whether labour-capital proportions are easily variable.
In the short-run, the technological and production coefficients may not be variable and it may not be possible to change the technology of production. The labour-costs may also constitute a relatively smaller proportion of the total manufacturing costs and it may be possible to absorb wage-rise without any adverse effect of employment.
In India, the wage-cost ratio is declining in the organised industrial sector and therefore the rise in the wages need for always raise the total costs and prices and this may not have any unfavorable repercussions on the level of prevailing employment. As Reynolds has observed that the rise in wages may result into ‘shock-effect’.
The rising wage-bill will shock the management and both the efficient as well as non-efficient’ industrial units will devise methods to economise on the non-labour costs and also rationalise the management practice so as to absorb the wage rise.
It is not always correct to say that the higher wages must of necessity lead to more unemployment. The policy inference of such an assertion would be obvious; abolish minimum wage legislation and control the trade unions. Wages and employment do not always bear a unique relationship and such relationships would be diverse in different socio-economic contexts.
Another policy inference could be, reduce wages to increase employment. But then several micro-level studies have shown higher unemployment in spite of low wage rates in areas of economic stagnation such as Bihar.
It is often stated that the rate of employment growth in the modern urban industrial ‘sector is largely a function of the rural-urban wage differentials. This often has implications and it is said that unemployment is a function of the wage-structure. In this context Michael Todaro has developed a two-sector model of wage-employment relations in the less developed countries.
He has formulated an economic-behavioural model of rural-urban migration which represents a more realistic modification of the simple wage-differential approach found in the models of W. A. Lewis, G. Ranis and J. C. H. Fei.
The model is based cm the recognition of the fact that the existence of a large pool of unemployed and under-employed urban workers must certainly affect a prospective migrant’s probability of finding a ‘high-wage’ urban job.
Todaro shows that the probability of obtaining a high wage urban job induces large flow of rural migrants to the urban areas. Instead of simple wage-differential, the expected income- differentials, the income-differentials adjusted for probability of finding a high wage job. Stimulate a bigger flow of migration of the rural labour. The process of labour-migration is viewed by Todaro as a Two-stage phenomenon.
The first stage finds the unskilled rural workers migration to urban areas and initially doing some low-wage job in the unorganised or the set-called urban traditional sector. The second stage is reached with the attainment of a more wage-paying modern urban job.
The high wage and the probability of getting eventually a high wage urban job stimulate labour migration at rates higher than the rate of employment creation in the modern urban sector in the less developed countries.
The two-stage migration thereby leads to severe problem of urban unemployment and under-employment. The level of relatively higher permanent wages in the modern urban sector continues to attract a steady stream of rural migrants to the urban areas. In other words it means that the reserve supply price of the temporarily unemployed migrant in the urban areas is higher than the ruling wage in the rural sector.
The probability of obtaining high wage urban job swells the urban labour market with the excess supply of migrant labour. But the question arises: Why do migrants continue to pour into the urban areas with high levels of urban unemployment?
The answer possibly could be that the higher wages that the migrant will receive when he finally gets a dependable and secure job will more than compensate him for his foregoing incomes.
Todaro’s model has been empirically tested by many economists. The available evidence shows that the migrants fare better after they have moved and with the passage of time, enjoy permanent income and employment opportunities similar to those experienced by the resident population.
The policy implication is clear that it is not desirable to regulate and control higher urban wages by adopting a kind of rigorous policy of wage freeze. As Mr. Gene M. Tidrick of Harvard University has said, “In an economy without the high wage sector, the incentive for or the means to support unemployment may exist.”
As Mr. Tidrick shows in his case study of economies of Jamaica and Haiti that the comparatively prosperous and rapidly growing Jamaica has more unemployment than poor Haiti because of the large high-wage urban sector. The large the high-wage urban sector, the more unemployment an economy can afford to support. Eventually all migrants manage to get a job.
Moreover, the limited evidence from Jamaica on how the temporarily unemployment migrants in the urban areas live suggests that many of the unemployed are better-off than those employed in the low-wage rural sector.
The fields studies show that the migrants are usually under thirty years of age, are better educated than non-migrants and can be male or female in Latin America but in Africa and South Asia are usually male. The difficulty in the less developed countries is that the migration to the cities exceeds the expansion of modern sector employment opportunities.
But the excessive rates of migration from the rural areas in response to the probability of getting higher urban jobs might create serious unemployment and under employment in the urban areas. Hence the accent may have to be on maximising the rate of absorption of the unemployed in the urban economy.
Moreover, the policy of speeding up integrated employment-oriented, rural development may also become more important to increase the rural wage and narrow the expected life-time differentials between the rural and urban incomes in the developing countries of Asia, Africa and Latin America.
The genesis of “wage-employment relations” seems to stem from the hypothesis that unemployment (or slow growth of employment) results from inappropriate-wages. To be precise, a close relation between wages and employment may be postulated when a nation is pursuing an optimum strategy which keeps real wages constant until full-employment is achieved.
It is often argued that in a labour surplus economy plagued with mass poverty, chronic unemployment and underemployment, the growth strategy adopted should have maximisation of employment as one of its key explicit goals.
Seeing the failure of development benefits to trickle down, quite a few economists argue that labour intensive techniques are appropriate to LDCs in providing jobs to the teeming millions. They advocate employment provision to be viewed as a major policy tool to concretely effect the goal of equality. A section of economists also believes that there is a trade-off between growth and employment and rising wages.
Sound economic theory does not lend its support to employment generation as a separate aim. The objective of development planning, with a constant real wage, should be maximisation of rate of surplus and growth so that growth of higher level of employment comes out as a by-product. Achievement of such goal depends on choosing the optimum strategy and the difficult task of its implementation as well.
Such a strategy uses a technology-mix that varies in degree and nature on the path of development and at the time of achievement of the ultimate objective of full capacity full employment growth with higher level of wages. It is rewarding to dispel the misconception that in labour surplus economy for employment generation, labour intensive techniques are appropriate.
The fact is that in LDCs, growth and employment, at a given real wage rate (equal to near subsistence level), will be higher neither by using labour-intensive techniques nor capital-intensive techniques but the middle techniques.
Advocacy of labour or capital intensive techniques to promote employment or growth is due to lack of perspective of overall optimum strategy and also due to narrow conception of time horizon. A proper mix of techniques adapted to time pattern of growth will lead, with initial high level of employment, to higher rate of growth of employment via maximisation of rate of surplus.
Until full employment is achieved the real wage rate is to be kept constant or may be permitted to rise mildly. Thus, in such a situation, the question of the so called tradeoff between growth and employment does not arise and both will move upward, one complementing the other.
Contrary to this, what is happening in LDCs like India is that planners preoccupied with growing unemployment and poverty hastily advocate crash employment programmes (or special employment schemes) without properly integrating them with the overall development strategy.
The result of such progranmes will be seen in mere amelioration of the problems for a while and ultimately the schemes fizzle out or become highly burdensome to execute.
Before we pass on to the various issues of wage-employment relations in the real world, it is well to remember that the preceding theoretical discussion implicitly assumes predominance of wage employment in the economy in the context of planning. But the problem is that the real world does not oblige neat models.
Coming to the main issues of wage-employment relations to LDCs it is illegitimate to attach much significance as self-employment rather than wage-employment is popular phenomenon. For instance, in the Indian economy, in terms of contribution to NNP, mixed incomes account for a little less than one-half.
Of the total labour force, the proportion of workers on own account is nearly 60 per cent while wage employment is about 16 per cent. This is understandable as the impact of industrialisation, des, e rapid strides made, on the economy as a whole, is not significant.
Even in the case of MDCs where wage employment is the main source of earning the nexus between wages and employment becomes weak if technical progress is absent and the classical thriftiness conditions are not fulfilled (i.e. se++ 1, sw++ 0).
On the other hand, if the savings propensity of the entrepreneurs (or of the corporate sector, being treated as proxy) is not substantial and if the household savings (which include workers’ savings as well) account for a significant proportion in total domestic savings, there is no reason to advocate stagnant or depressed wages with a view to achieve higher level of employment and growth considering the savings pattern in India.
In 1980-81, the rate of savings with respect to national income at market prices) was 16 per cent, of which the savings of the private corporate sector accounted for just 0.8 per cent (that of public sector 2.4 per cent) which households contributed 7%.
Further, in 1979-80, the contribution of private—corporate sector to total sources of finances was 1.2 per cent while it made use of 11.2 per cent. These facts are corroborated by a recent study published in the Economic Times.
It reveals that in the total investment made by the corporate private sector, internal sources accounted for about 43 to 58 per cent during the plan period. This means tire private corporate sector has been heavily depending (to the extent of about 50 per cent) on public financial institutions for its investment.
This being the case, are the planners justified to advocate a restraint on wages alone (and not on consumption out of profits as well) in order to promote growth of output and employment?
This aspect needs further probe before one can firmly lay his hands. To sum up: the linkage between wages and employment will be intimate only when certain conditions are fulfilled via:
(a) The country is following an optimum strategy with a constant real wage rate until full employment is achieved,
(b) The wage-structure in various sectors and industries should be such as to have tolerable disparities among different categories of employees so that there is incentive for individual employees to develop their skill and put in best effort.
(c) Profits are nearly ploughed back for further investment, using appropriate technology geared to the production of desirable product-mix. Only when these conditions are fulfilled, then a restraint on wages becomes justifiable until all find employment.
Essay # 10. Effects of Regional Variables on Wage:
The general conclusion of the analysis so far has been that the extra-local, ‘industrial’ variables seem to have weighed more heavily than local and regional ones, suggesting thereby the existence of an inter-regional competitive labour market. But the conclusion remains unfortified to the extent this analysis does not directly refute the hypothesis of the existence of localised labour markets: it does so only indirectly.
In order to validate this conclusion one has, therefore, also to see how far the purely local or regional variables yield their influence on the wage situation in a region. Therefore, we consider two more variables primarily of a regional character. These variables are the relative manpower situation and agricultural wage rates in a region.
It is expected that if the labour markets are of regional character then the wage rates should show a strong negative relationship with the excess supply of labour and a strong positive relationship with the agricultural wage rates among regions. It must be noted that the surplus manpower ratios so obtained do not precisely reveal the extent of unemployment in the States.
Andhra Pradesh and Assam have a low value both of surplus manpower and wages and Bihar and West Bengal pay relative high wages despite a high unemployment ratio. It looks that depending on the level and pattern of industrialization; a state pays a high or a low wage irrespective of the local labour supply situation.
The analysis of regional wage differentials reveals that, while there exists a considerable extent of geographical differentials in average wages in manufacturing sector and in individual industries among different States, their extent does not necessarily arise from the absence of inter-area competition in the labour market.
A significant part of the differentials in average wages in manufacturing industries among States merely reflects inter-industry differentials; and such differentials exist because of differences in industrial-mix among States.
It may be inferred from our analysis that if the industry-mix of States were similar the geographical differentials would be reduced by over 60 per cent. Thus, the differentials appear to occur mainly on account of ‘industrial’ variables, and the assertion that the observed differentials indicate the lack of inter-area competition, therefore, has only doubtful validity.
On the other hand, certain results of our analysis lead us to infer that the labour markets do not have a localised and enclave character. We found that the industrial differentials within a State are more pronounced than area differentials in the sane industry.
There exists a significant similarity among States as regards their inter-industry rank structure by earnings. The extent of deviation however, corresponds with the interstate differences in the size of an industry.
The spatial structure of an industry is more consistently related to its corresponding wage structure than is the inter-industry structure within a State with the corresponding wage structure. That is, the ‘industry’ rather than the ‘region’ features are effective wage makers so far as the demand for labour is concerned.
Finally, the local labour supply situation and supply price of labour (agricultural wage rates) were found not to contribute to the relative industrial wage positions of the States.
The above two sets of general findings suggest that the labour markets in India have a predominantly ‘industrial’ rather than ‘regional’ character; and a fair degree of inter-area competitiveness does exist across the States, in the case of workers who are not definitional non-competitive.
The apparently high degree of geographical wage differentials is not so much because of the lack of competition as because of industrial characteristics of regions. Eliminating the effect of industry-mix in a region’s relative wage position, the extent of variation in wage rates among the 15 States turns out to be only around 9 per cent, as against 25 per cent in actually observed differentials.
In view of these findings, a ‘regional’ approach in wage policy seems neither capable of bringing down the extent of geographical wage differentials nor an effective instrument for the allocation of labour.
A narrowing down of geographical differentials is not likely to be achieved by the manipulation of wages through ad hoc measures; it can be achieved and sustained only with the leveling of regional differences in industrial levels and structures.