A nationwide minimum wage will kill jobs: Panagariya

Arvind Panagariya, Former vice chairman of the Niti Aayog

Former vice chairman of the Niti Aayog, Arvind Panagariya has warned the Modi-led government against implementing a nationwide minimum wage across the country saying if such a wage is determined on the cost of living in metro cities like Delhi and Mumbai, it will wipe out jobs from the labour-intensive sectors such as apparel and footwear.

He has also criticized the draft wage code bill to the extent that proposes higher minimum wages for higher levels of skills, saying the move will nudge enterprises towards more capital intensive technologies, thereby undermining job creation.

Panagariya’s caution comes a day after the government introduced the wage code bill in the Lok Sabha. The Columbia University professor, who has served as a policy adviser to Prime Minister Narendra Modi, rued that so far there has been no discussion of the contents of this code in the public policy space.

“Enterprises in these (apparel and footwear) sectors operate on paper-thin profit margins and minimum wages reflecting the cost of living in metro cities would pose an existential threat to them,” he said in a write-up in the Times of India.

He said that basing the nationwide minimum wage on the cost of living in remote corners of Bihar and Odisha had its own drawback as that would attract the ire of organised labour and opprobrium from international agencies such as the International Labour Organization.

He has suggested that the task of setting the minimum wage should be left to state governments, who are in a better position to define the minimum acceptable living standards within their state borders.

“This is the practice in most countries,” Panagariya said, adding a single national minimum wage lacks a rationale.

To his argument against higher minimum wage for higher levels of skills, he said the ethical argument for a minimum wage is that all workers should be able to afford a minimum acceptable standard of living as per prevailing social norms. This standard cannot vary according to skill level. Almost no nation on the globe follows this practice, Panagariya said.

Beyond a minimum acceptable level, wages must be free to adjust according to market forces, the eminent Indian-American economist, who quit the Modi government mid-way his tenure, said.

The proposed draft wage code also provides for the central government to set the minimum wage in sectors such as railways and mines. It is difficult to see the rationale behind this provision. Once the state government has determined the minimum wage in a given region, according to prevailing social norms, it should apply regardless of the identity of the employer.

“Why should socially acceptable minimum living standard for an apparel worker be higher or lower than that for a railway or mine worker?,” he asked.

“It will be a travesty if such an important code reaches the Cabinet and thence to the parliamentary floor in a form that leaves rigidities of the existing laws untouched or, worse yet, strengthens them,” he said.

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