Importance and Need of a Rational Wage Policy

Wage as monetary reward is paid to an employee for the services rendered by him. A sound wage policy should be aimed at social justice, which eventually means that the working class gets its due share. This is important because even after five decades of Independence, more than 50 percent of the urban population and nearly 38 percent of the rural population live below the poverty line.

So a rational wage policy must be able to furnish a standard of living and must be able to eliminate the relative poverty. Here it is important to clarify the concept of relative poverty. It refers to the relative share of income accruing to the working class. Relative poverty is concerned with the inequality in distribution of income. A study on wage differentials has shown that forty percent of the lowest earner gets only sixteen percent of the total national income whereas the share accruing to the top twenty percent of high income earners is as high as fifty- two percent of the total national income.

Thus in the present condition, a rational wage policy must effectively deal with the following components:

1. Fixing minimum wages
2. Fixing ceiling in wage incomes
3. Wage structure
4. Price stability

There is a need to fix the minimum wage which in the absence of a Central directive may be very low. Thus there is a need for policy to provide a wage which would be necessary for the fulfillment of subsistence level needs. The protection of workers against exploitation or unduly low wages has been wage policy’s major preoccupation in any underdeveloped country.

Similarly the need for a wage ceiling is advocated to check the upward inflationary trend of the wages. It is argued that the wage should be related to productivity. In order to achieve the objectives stated above, a policy must provide for a wage structure. It refers to a set of relationships between rates of pay for different groups of similar occupation. The past efforts in this direction were not very encouraging mainly because of the wage differentials that exist in our country. The spread of wage and salaries in underdeveloped countries is extremely wide. The wages structure must also contribute to price stability.

Thus it is clear that a rational wage policy must concentrate on raising the incomes and employment of specific socio-economic groups in India. The one important goal that usually wage policies seek to achieve is to control the inflationary trend. The economists have strongly advocated that hike in prices is the result of the inflationary trend and it can be established only by curbing inflation which is caused by higher wages. This conventional wisdom can hardly be justified as the higher wage be consequence rather than a cause of inflation. What they actually ignored is the fact that inflation might have been caused by several other factors like reckless deficit financing, easy credit policy and inelasticity of output of the essential goods.

Thus, only a tight control over wages may not have any significant impact on curbing inflation which is too often caused by multiple factors. At best such control over wages can only moderate the speed of inflation.

The rational wage policy, therefore, should aim at reducing the relative poverty of the working class. It is, however, in this direction that our achievements have been least impressive of all.