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IASbaba’s Daily Current Affairs – 22nd April, 2016
ECONOMICS
TOPIC:
General Studies 3:
- Indian Economy and issues relating to planning, mobilization of resources, growth, development ; Banking & related issues
- Inclusive growth and issues arising from it.
General Studies 2:
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Issues relating to poverty and hunger.
Waging a minimum wage battle in the labour market
Background:
- Welfare economists support minimum wages for their redistribution effects. Mainstream economists argue that minimum wages drive down demand for labour by companies. And—especially relevant to India—minimum wages coupled with rigid labour laws send firms scurrying outside the regular formal job market.
- As per recent Economic Survey, firms thus hire contract labourers at suboptimal rates, which reduces the chances of a Pareto improvement ( A pareto improvement is a neoclassical economics, an action done in an economy that harms no one and helps at least one person.)
- In this context, the executive decision by the government to provide a minimum wage of Rs.10,000 per month to contract labourers. However, the policy has come a step “closer to universal wages” rather than minimum wages.
What is ‘Minimum Wage’?
- Minimum wage is the minimum amount of compensation an employee must receive for performing labor.
- Minimum wages are typically established by contract or legislation by the government. As such, it is illegal to pay an employee less than the minimum wage.
- The minimum wage attempts to protect employees from exploitation, allowing them to afford the basic necessities of life. The minimum wage rate fluctuates between countries, and sometimes between states or provinces.
Why Minimum wage is important?
- Minimum wages help in lifting people out of poverty, helps low-income families make ends meet and narrows the gap between the rich and poor.
- The wages payable to contract workmen right now cannot be less than the rates prescribed under the Minimum Wages Act 1948. But this is restricted to just 45 economic activities.
What are the recent trends?
- Policy has come up to have universal wages rather than minimum wages.
- Minimum wage widens the wedge between the two wage rates, by taking care of permanent employees and contract workers, whereas universal wages involves paying an optimal amount to every employed person.
- Economic Survey estimates that wages are on an average 20 times higher in the formal sector than the informal sector in India. The new minimum wage for contract labour, an integral part of the informal sector, seeks to fix this wedge, at least partially.
- According to an estimate by V.V. Giri National Labour Institute, only 16.6% of the informal sector gets covered under the existing Contract Labour (Regulation and Abolition) Act, which deals with the wage norms of contract labourers among other things.
What are the concerns plaguing labour market?
- The Article 246 (with 7th schedule) of the Indian constitution puts the issues related to labour and labour welfare under the concurrent list. However, the exceptional matters related to labour and safety in mines and oilfields and industrial disputes concerning union employees come under Union List.
- The irony of putting labour in concurrent list is that today we have around 47 central labour laws and 200 state labour laws.
- For instance: We have separate laws for cine workers, dock workers, motor transport workers, sales promotion employees, plantation labour, working journalists and workers in mines. There are varied definitions on child, contract labour, wages, employee, workman, factory, industry, etc. Though most of these laws are archaic, yet many of them are relevant for welfare of the labourers.
- Contract workers have over the years become a way to circumvent India’s rigid labour laws.
- The Economic Survey duly notes that contract labour is growing rapidly in states with more rigid labour laws, despite it not being the preferred first option for most firms due to the contracting costs involved.
- The new executive order will bring an amendment to Rule 25 of the Contract Labour Central Rules will be in favour of workers but apprehensions doing rounds is that the move would restrict workers to the informal sector rather than helping them move into the formal sector.
Way ahead:
- Labour reforms in areas such as industrial relations, small factories and employee’s provident fund must be coupled with job creation to fix the issues of unemployment and underemployment and facilitate the ease of doing business.
- While ensuring contract workers’ financial security is important and it is equally necessary to pursue labour reforms that can facilitate a faster transition to the formal sector.
- A reformed labour market is also a prerequisite for the success of Make in India and improving the ease of doing business, and not a substitute to job creation.
- Broader interests of the employers and the workers should be taken into consideration, to use contract labour in non-core activities and also to some extent in core activities.
- The first requirement is to have a clear distinction between core and non-core activities.
- Multiplicity of the labour laws should be addressed.
- Unification and harmonization of the labour laws should be done.
- As employment is in the concurrent list of the Constitution, the support of the states is also crucial for securing a flexible, transparent, thriving labour market. In fact, the minimum wage determination for contract labour should be left to the discretion of the states as part of cooperative federalism.
Connecting the dots:
- Minimum wages only treat the symptoms of a struggling labour market but the cure would be to entail a more flexible labour market. Comment
- Will fixing a minimum wage for contract labour resolve labour market issues? Elucidate.
NATIONAL
TOPIC:
General studies 2
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation; Governance Issues
General studies 3
- Science and Technology – developments and their applications and effects in everyday life
‘Surge pricing’ Economics – A misguided ban in Delhi
- Surge pricing is essentially an algorithm-based mechanism that determines fares based on supply and demand
- Based on sound economic theory— App-based services match demand (“riders”) with supply (“taxis”)— Both are variables, depending on external factors such as time of day, location of pick-up and drop-off, as well as traffic conditions.
- Thus, if high demand exists in one area without matching supplies, Uber’s (and Ola’s) surge/dynamic pricing mechanism ensures greater supply to meet an increase in demand (signalling mechanism for both drivers and riders)
- Credibility— The economics behind matching is what earned game theorists Alvin Roth and Lloyd Shapley their Economics Nobel in 2012
- Other Transportation—
- Airlines have the flexibility to raise fares depending on demand, subject to a cap
- Railways sets aside some seats for those willing to pay more, based on the knowledge that demand generally outdoes supply when it comes to train tickets.
Aggregators & the new Economy—
- Use modern technology to disrupt the traditional, and often moribund, market
- Have succeeded by bringing in efficiencies in both cost and convenience, which have been central to their popularity
Utility of the services—
- More taxi options
- Reduced prices
- Drivers under an aggregator’s brand earn more on an average than they would otherwise
- No fear about monopoly operations by multinational players
Ban on surge pricing—Misguided:
- Odd-even dimension:
- The surge pricing ban has flowed from the imposition of the odd-even licence plate rule, which has increased the demand for taxis.
- A steady supply of transport vehicles to allay any disruption to lives and livelihoods is necessary and such a diktat, at this time is almost like straddling a fine line between incomprehensibility and inconvenience.
- Cancelling or capping surge pricing will not only lead to a disruption in cab services in the city, it is also poised to meddle with livelihoods that are dependent on these transportation services.
- Has proven to be counterproductive—the number of taxis plying on Delhi’s roads has dropped
- Politically Incorrect: the signal the Delhi government has sent is that if the private sector wishes to operate in Delhi, it is subject to government interference and control (Core vote banks be troubled) (how retrograde politics compromises public interest)
- Consequences for drivers operating, and commuters living and working on Delhi’s periphery— Without dynamic pricing, which allows drivers from outside the city to compensate for the long distances, the number of taxi operators coming into the city from these areas would be limited; it would also push existing supplies towards areas where no such laws exist.
- The curious case of taxi unions and auto-rickshaw drivers— a large vote bank, which is demanding a revision of fares
- Odd-even experiment: Would directly benefit this section by increasing public dependence on public transportation
- Collapse of private companies like Uber and Ola will give these unions the opportunity to regain monopolistic tendencies – the same tendencies that gave many taxi and auto operators powers to arbitrarily set prices based on distances, time and moods – force the public to accept the proposed fare hikes for auto-rickshaws in the event of the odd-even formula becoming permanent
Alternate Solutions-At a glance:
- Enhance options in terms of
- Better modes of public transport,
- Greater frequency of bus and metro services during rush hour
- Adoption by mass transport of applications using similar algorithms to allow passengers to plan their commute better
- Enhance public awareness about how these algorithms work in commuters’ favour
- Cap surge pricing to a predetermined multiple of the regular rate
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MIND MAPS
1. Irrelevance of Sedition
