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Do Minimum wages encourage Skills Development?

The ultimate beneficiary of the minimum wages is the workforce segmented into "unskilled, semi-skilled,  skilled and highly-skilled". Hence, ideally, the wage matrix must encourage the potential worker to up skill / re skill so be able to earn a higher wage to improve his / her quality of life. 

Do minimum wages backed by the Code on Wages Act 2019, which has replaced the Minimum Wages Act, 1948; Payment of Wages Act, 1936; Payment of Bonus Act, 1965; and Equal Remuneration Act, 1976 really encourage skills development? Or there is a room for further improvement!!

Just as a matter of interest, the minimum wages are calculated based on a complex matrix basis of a family of four members ie husband, wife, and two children below the age of 14 years. The husband is taken as 1 unit, wife as 0.8  and children as 0.6 each. Thus taking a family as 03 consumption units. There have been some suggestions lately to include parents also. The wage takes into account several parameters like:

  • the skill of workers under the categories of unskilled, semi-skilled, skilled and highly-skilled or 
  • geographical area 
  • arduousness of work like temperature or humidity normally difficult to bear etc 
  • as may be prescribed by that Government; 
There are other conditions that must be met like: Food ( 2700 calories per day), expenses for fuel, lighting,  rent, education, medical, recreation, provision for old age and marriages  etc.. 

The full breakup and detailed method of arriving at the final min wage is beyond the focus of this article, hence not being touched. 

A quick analysis of the current min wages (2019 / 2020) across all States and Union Territories reveals the following:

  • The difference between unskilled / semi-skilled to skilled / highly-skilled is as little as Rs 10 to Rs 50 per day, thus restricting any motivation to work hard and up skill for better wages. 
  • Many States and UT's have published a separate category of workers as clerical / supervisory staff, thus deviating from the norms of skills classification of unskilled / semi-skilled etc to blue collor and white collar. 
  • Some States and UT's have fixed the job roles / trades in a particular category of skill level  thus closing all options for any vertical growth enabling movement into higher category of wages even after gaining experience and mastering their skill. 
  • Some States continue to define the skill level based on education and experience rather than Skill and experience.  
  • Some States while fixing the job roles / trades in a particular skill category for wages have put say a Data Entry Operator in highly skilled category and a Machinist in a lower skill category. (This has just been taken as a example from one Minimum wages notification,  without any preconceived bias towards the Data Entry Operators).  Many such examples can be extracted from several latest notifications.  

Having understood the complex matrix used by States and UT's to calculate the Minimum Wages for the beneficiaries of the defined 4 Skilled category of workers, it may not be really helping the growth of the Skills agenda of the country.

There are no preconceived solutions at this stage, however, there is definitely a need to review the entire calculation matrix in light of the following developments in the Skills Development sector:

  • The National Skills Qualifications Framework (NSQF) now getting popular which has 10 skill levels as against the 4 defined for calculation of wages. As per NSQF, there is no unskilled category. Even at Level 1, the person is taken as skilled at Level 1 of the NSQF. The NSQF sure does instill a sense of pride and recognition,  which is much needed in this sector. 
  • Focus on both vertical and horizontal progression within and / or outside the chosen occupation, thus giving options to move to higher skill and wage levels. 
  • Increased focus on Recognition of Prior Learning (RPL), encouraging people to aspire for higher wages levels. 
  • Focus on competencies rather than education levels.

The current form of calculating the minimum wages do not fully catalyse skills development, keeping in mind that gainful employment is the end goal of any skill development initiative.  







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