in present day why are the wages of labourers are very less as compare to minimum wages?
Answers
The National Rural Employment Guarantee Scheme (NREGS) guarantees 100 days of employment at the rate of Rs 60 a day. According to the website of the Union ministry of labour, the minimum wage is pegged at Rs 66 per day.
In dollar terms this comes to about $8.5 per week, assuming a six-day week. In America, the minimum wage is roughly $5.5 per hour before deduction of payroll taxes. Assuming a 40-hour week, this amounts to $220 a week.
The cost of living is much lower in India, the differences being adjusted through purchasing power parity (PPP). According to the World Bank, the rupee equivalent of a dollar can buy goods and services valued at about five times what a dollar can in America. Therefore a weekly wage of $8.5 in India is equivalent to $42.5 in America. Ceteris paribus, the minimum wage in America is five times higher than what it is in India.
Theoretically speaking, since capital is scarce and labour abundant and less productive, wages are relatively lower in India. But minimum wages are not market clearing wages. They are regulatory wages to ensure that market wages do not fall below subsistence. They are expected to cover the essential current costs of accommodation, food and clothing (roti, kapada aur makaan) of a small family.
Let us consider the monthly expenses of a family of four living in the American Midwest. The family spends $520 on rent for a two-bedroom apartment, $150 on utilities, $250 on food and clothes, $100 on petrol, and $200 on family health insurance, or $1,220 in all.
A minimum wage of $220 a week yields a net monthly income of $820 after tax. Payroll taxes smoothen the consumption curve during spells of unemployment and in old age. This leaves an uncovered monthly shortfall of $400 a month, which could be covered by two hours overtime (at 150% of the minimum wage) five days a week, or by three hours part-time work, possibly by the spouse.
In America, therefore, the minimum wage captures the market value of food, accommodation, utilities, transportation, healthcare and social security at subsistence levels for small nuclear families. The rise in single parent families and health insurance costs distort but do not entirely alter this picture, especially since private charities and public support and emergency systems constitute effective back-ups.