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.
 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
 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
 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
 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
 Fixation of statutory minimum wages in
sweated industries.
 Promotion of fair wage agreements in the
more organized industries.
Fair Wage Committee
 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
 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
 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
 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:
 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 Devising Job analysis
Organization Strategy compensation & Evaluation
Policy

Grouping similar jobs into pay Analysis of internal

Fine tuning & external factors
Grade and pricing each pay grade
rates of pay

Wage & Salary

administration
Review of organization strategy
 Maturity stage of organization
 Line of business of the organization
Devising compensation policy
 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
 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:
 Value of job as determined by job evaluation
method
 Current average pay rates being paid for jobs in
each pay grade.

Wage Wage
rate 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
 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
 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)
 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
 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