With a 70 year old legacy, the Minimum Wage Law of our country is still amongst the most contentious issues rocking the nation. This is not surprising considering the law is our nation’s pacemaker, regulating the activities of the nation’s pulse- labour force.
This labour force differs from state to state, posing a variety of challenges contingent to their plight and power. One of the states where their power reigns supreme is Kerala. You may as well consider Kerala to have their own socialist set up within a dominant capitalistic framework of the country. This article in no way denounces any economic structure or framework but brings to light certain hard realities and an unbiased opinion based on objective facts.
Let us delve further into the situation prevalent in the state.
The industrially unstable environment of Kerala attributes itself to the presence of more than 10,000 trade unions. One can term the plight as the rule of the proletariat, wherein the workers reign supreme. The collective bargaining of the same almighty trade unions can be seen in the wage structure, social security schemes, and the overall industrial ecosphere.
As far as the wages are concerned, Kerala has the highest wage rate in the country and unlike other states where wage laws are barely implemented, most workers in Kerala earn more than the minimum wage. The recent draft labour policy by the Left Democratic Front proposed the minimum wage as Rs. 600 per day in contrast to the National Floor Level Minimum Wage which is Rs. 176 per day. If you are amazed by this, the further series of events would make you realise the kind of power that these trade unions possess.
Recently, Kerala banned the practice of ‘Nokku Kooli’, literally meaning ‘gawking wages’. Under this activity, wages are to be paid to the labour union activists for allowing the businesses and households to use a machine or other workers to unload material. This activity resulted into frequent altercation between the entrepreneurs and the labourers as trade union activists extort money from the former. It was reported that the state-run Kerala State Medical Service Corporation had to pay Rs 4,000 for unloading a diesel generator using a crane. Head load workers belonging to Communist Party of India forced a contractor to stop the national highway maintenance work at Alappuzha, the cradle of communist movement in the state, after he refused to pay nokku kooli. The ban on this practice was necessary to make the environment in the state more investment friendly.
As far as the political status of the state is concerned, we have Pinarayi Vijayan, belonging to CPI(M) heading the Left Democratic Front. The other coalition that has previously come into power is the Congress-led United Democratic Front. Clearly, all the parties that win the elections, win it on the basis of a socialist manifesto. Thus, the political front further empowers the already strong foot holding of the labour unions.
In such a backdrop, the industry of Kerala is the one that takes a toll with delayed or halted production due to several strikes, low investment, lack of entrepreneurial spirit, poor infrastructural conditions, etc. Moreover, historical evidence depicts that the public sector investment sustains the industry in the state. The problem with the Kerala model of development lies in its industrial and economic backwardness despite the presence of resources such as raw materials including cash crops, forests and the hydro-electric potential.
As economists, we have to recognise the intrinsic question that the Kerala model poses. How much power should the labour union have and is the same power at the cost of industrial prosperity legitimate? It would be impossible to quantify the power that these unions possess. However, it doesn’t require an extremely knowledgeable economist to recognise the fact that the current retention of power with them is problematic.
The paradox of this situation is that despite such trade unionism, Kerala has a high rate of unemployment. While the minimum wage law might be necessary to bridge the gap between the haves and have nots and provide for low income families, the same law forces the employer to downsize the staff to accommodate profit margins or not even employ staff in the first place. Additionally, no employer would want to deal with the brunt of the powerful labour union and would prefer employing capital intensive techniques to have minimalistic contact with the union.
It is not just Kerala where this paradox exists. In countries such as the US, the debate about the Minimum Wage Law is an unending one. Recently, Seattle’s minimum wage was raised to $15, which is over double the federal minimum wage of $7.25. The repercussions were that the high wage rates reduced the employment opportunities, resulting into even lower average pay for the poor workers, according to the study published by the University of Washington. Nevertheless, another study by the University of California, Berkeley, proved that the worker income was in fact boosted by the increase in the minimum wage rate. Conclusively, the subject still remains a contentious one.
Coming back to Kerala, there really is no proper solution to the problem of such extensive concentration of power in the hands of the trade union because of the kind of support that these unions have already amassed. No political party dare go against them, otherwise they lose the elections and no business dare go against them, otherwise they get wiped out of existence. The minimum wage cannot be decreased until and unless the power with the union decreases and therefore, the state has reached a stalemate. Such power in the hands of the union and that too at the cost of industrial prosperity of the state is not legitimate. However, the only solution to the problem is to prevent this power from getting out of hands while also developing complementary schemes for projecting a more lucrative image of the state to attract investments. The state should continue, or rather, increase its spending on the industry. While Kerala may qualitatively have a superior hand in terms of the Human Development Index, the Government should make genuine efforts towards a more quantitative growth in terms of per capita income.
By Muskaan Malhotra.