How to successfully set a minimum wage in India

Abstract

A policy maker interested in achieving a wage push along with employment gains is most likely to be able to do so with a strictly enforced but reasonably low minimum wage. Recently, there has been much discussion about the minimum wage in India following the introduction of the wage code bill, which seeks to set a legal national wage floor, and the Delhi government’s intention to revise its minimum wages. The discourse, however, lacks serious inputs based on careful evidence-based understanding of the impact of the minimum wage law.

It is commonly understood that instituting a minimum wage reduces employment levels. This theoretical outcome is founded on the crucial premise that we operate in a labour market where employers do not have wage-setting power. This means assuming that the labour markets are competitive. In competitive markets, firms take the market wage as given, and hire workers such that the revenue contributed by the last worker hired (marginal revenue product) is equal to the market wage. If a legal wage floor higher than the prevailing market wage is introduced, it would result in job losses. Read more at: https://www.livemint.com/Opinion/sX6cZQuRcuyrbHggZNlOhK/Opinion--How-to-successfully-set-a-minimum-wage-in-India.html