Nov
26
“Concentrated power is not rendered harmless by the good intentions of those who create it.” -Milton Friedman
One may wonder what the great economist Milton Friedman was thinking while he uttered those words. May be he was thinking of the ill-effects of price controls and how does price control[1] causes shortage and hence excruciating conditions for the most poor men of society. He might be thinking of the ill-effects of socialized medicines[2], or may be he was thinking about the irrationality of minimum wage law and the manner that the very intention of improving the living conditions of poor workers actually condemns many to acute poverty and unemployment.
Minimum Wage Law in India
Abolish Minimum wage, Abolish Youth Wage
After Independence, the new democratic government of India set-up a “Committee for Fair Wage” in 1948 to provide guidelines for wage structure through out the country, it was the beginning of Minimum wage law in India. Were Indian leaders, who are assumed to be the fathers of Independent India such fools that they failed to realize the vicious trap of British Government and hence established the poisonous minimum wage law, or were they simply following the steps of British government (being the new rulers of India) to keep the policy of Divide and Rule?
Consequences of Minimum Wage Law
The rate of unemployment is directly proportional to the overload of labour cost over productivity. Minimum wage law that forcefully raises the costs of unskilled and inexperienced labour and thereby increases the labour cost, while decreasing the productivity, certainly raises unemployment, also as no one can employ a worker at a wage below the minimum wage forced by the law, the unemployed youth fails to get any chance for employment (as it would be illegal) and hence suffers extreme poverty. Often economists ignore the fact that minimum wage law actually causes unemployment and poverty because of the shear fear of politicians and rulers, who just for making their vote bank keep exploiting the poor lot.
Consider a case of a private primary school engaged in providing elementary education to the poor kids of a society. The owner of the school is obviously not a rich person, he is managing the school to earn a living and in return, he is providing job for teachers he employs and a well-managed system of education to the kids of the society at affordable student’s fees. He cannot increase the student fees to that level at which parents would find it difficult to send their children to his school. Initially, he engages 10 teachers, 2 clerks and 4 menial workers at an average salary of Rs 1000-Rs 1500 per month. In September 2007, the national minimum floor wage was increased to Rs 80 per day (that is Rs 2400 per month) for all scheduled employments from Rs66 in 2004, to Rs 45 in 1999, Rs40 in 1998 and Rs 35 in 1996[3] .
That is, the school owner is actually doing an illegal act by giving lesser salary to the ten teachers he has employed than the salary, which government has admonished to be given to the teachers (workers). Obviously, the teachers would be happy if their salary were increased from Rs1000-Rs1500 to Rs2400 per month, it would almost be double. If government forces the school owner to give the dictated salary to all his employees, he will certainly find himself unable to give that amount to his employees and hence he will be forced to trim the number of teachers, clerks and helpers to half. That is, if government forces the minimal wage law on the school owner, he will simply remove 5 of his teachers, 1 of the clerk and 2 of the menial workers.
That would increase the salary of remaining 8 employees but will certainly throw the unfortunate other 8 people in poverty and unemployment. They will hardly find any other job because all other employers will also suffer the similar inhuman conditions of lack of money to employ the job-seekers.
In case of teachers, the school manager has option to choose the best of the teachers and remove the average or below average teachers. In case of the clerk and the menial workers, he simply does not have such a choice because almost each of his employees is similarly skilled and efficient in those works. So how would he decide whom to remove and whom to keep as his employee? He may choose to employ those, who agrees to sign at the pay slim as admonished by the government, while taking lesser salary in turn of his favour to keep them at job, that is, he would be tempted to promote corruption. Otherwise, he may keep the workers of his caste or religion while removing the workers of other caste or religion. That is, the minimal wage law will force the employer to cause hatred based on religion or caste.
Were the Indian politicians fool enough to be unaware of vicious nature of Minimum Wage, or were they following the footsteps of British dictators to Divide and Rule and exploit the poor Indian?
Conclusion
Minimum wage law not only increases unemployment and extreme poverty but also, it increases tensions anger in between the various sects of the society based on religion and castes or race. It promotes racism, poverty and shortage.
It would be wrong even to think that the founders of India were fool enough to miss the true nature of minimum wage law, yet they kept following the British policy of divide and rule just to keep their political vote bank strong enough while the poor public is bound to suffer. Such inhuman policies are necessities of government to exist, hence government and politicians often lure the poor public by misguiding them and pretending that the politicians are with good intentions and want to help the poor, the reality is, government exists on the principle of violence, exploitation and robbery and enslavement of poor citizens. Footnotes:
- Consequences of Price Control, Reason for Liberty [↩]
- Abolition of Cost is cause of Corruption, Reason for Liberty [↩]
- Minimum Wages Act India, Government of India [↩] [↩]
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245 views15 Responses to “Inhumanity of Minimum Wage Law”
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suyog Says:
November 26th, 2009 at 9:53 ami agree with the theory..minimum wages…illegal activities that leads under utilisation of resources..these economical theories work under certain assumptons…which are unralistic ….
i think in india govt interventions are required as wage market is not perfect….thus it is actually impossible to calculate misutilisation of resources…
for placing any policy 4 whole nation detail analysis is required…any person will prefer a known pill with side effect than complete new thing
i dont deny applicability of min. wage rule but indian labour scenario required time to develope that market itself will deside quantity and price 4 labour….
Unpretentious Diva Says:
November 26th, 2009 at 10:06 amBuddy, you missed the essence of article by far.
Government itself is MISUTILIZATIOn of essential and scarce resources.
Nothing is perfect, but the system most near to perfection is FREE MARKET, freedom of everyone.
When government interferes, things go awry, forcing wastage of resources.
India never needed minimum wage law, but government always needed to force it on public and make them further poor, more unemployed, more struggling the shortage of everything.
In a free market, the freedom provides the necessary idea of what should be the appropriate wage for a worker. How can government decide it?
Government has NO WAY TO DECIDE it.
By interfering free market, government destroys the verty important processes through which prices and wages are decided. The way to decide is the MUTUAL beneficial agreement.
One will work for that who will give him the maximum wage for his standard of work.
One will give work for that who will provide him the best work at least price.
This freedom of employer and emplkoyee decides the exact wage without
any wastage. government when intervenes, no one can decide what is
profitable for them but their own self, and they are not allowed to decide for their own profit, and that is reason of wastage.
By interfering free market, government destroys the verty important processes through which prices and wages are decided. The way to decide is the MUTUAL beneficial agreement.
One will work for that who will give him the maximum wage for his standard of work.
One will give work for that who will provide him the best work at least price.
This freedom of employer and emplkoyee decides the exact wage without any wastage. government when intervenes, none can decide what is profitable for them, and that is reason of wastage.
How do you think wage market will improve in India?
How can government improve it? By forcing poor people to suffer unemployment starvation and death?
To improve the wage market/labour market or any other market, the most bimportant step is, to let that market be FREE of government interference and let the people, the producers, the consumers, the dealers, the employers the employees to fetch and agree for their own mutually beneficial prices/wages/profits.
That is the only way. Once government interferes, market looses its strength to show the profitable choices and proper prices/wages. and hence wastage occurs, poverty occurs, shortage occurs.
GP Says:
November 27th, 2009 at 9:43 am-I think Minimum Wage law only affecting unskilled and part time workers who could not sell their labour in market due to incompetence or lack of skills and its quite understandable that they cry foul against law rather than doin soul searchin on - “what are the real reasons for not getting jobs ( i.e. lack of skill / work ethics - especially part-timers ) . Now about the point of unemployement - I guess if employers are compelled to increase waging rates then definitely they will reduce no. of hrs / contract period OR no. of workers to be employed which may leads to unemployement ( i.e. due to surplus labour ).But again - if demand for product is varaible then manufacturer can always - add the extra cost as price for the product to be sold and need not carry out lay-offs so thats another way they can tackle unemployement issue.
Unpretentious Diva Says:
November 27th, 2009 at 9:57 amI already mentioned it poor kid, they cannot.
after a certain limit, no producer, no seller, no service provider can raise the price, because if do so, the buyer prefers to NOT to buy that product.
If you increase the school fees, students won’t come to study. Who will suffer? The poor parents, who will find it impossible to teach their kids.
If you increase cost of Gas, people will stop using LPG and will burn trees and shrubs for preparing their food, its cheaper. If you increase cost of wheat, people will prefer eating Jowar, bajra, or rice. To make high profits, you need to reduce your prices as low as possible, because lower prices increase demand, and increased consumers increase profits.
Wrong laws always causes wrong and any law against Liberty of Individual and liberty of market as whole is certainly wrong, immoral and unjustified.
By the way, only in government controlled market there can be surplus of labour. On the other hand labour is extremely scarce resource on earth where the need and desire of man are unlimited. May be India is suffering surplus of teachers that is why so many kids do not get a school and if they get a school, they do not get teachers.
Unpretentious Diva Says:
November 27th, 2009 at 10:09 amrather it is foul against the skilled better workers, who certainly can (and do get) much higher wages in absence of any such ridiculous law.
Consider the case of labors in railways, it is controlled by government. No matter how good and strong labour you are, you will get Rs80/- per day.
What a robbery.
Even an unskilled meagre worker earns atleast Rs130/- in the labour market of any Indian city which is obviously not controlled by Indian government. And if the labour is skilled, with efficiency and specifi9c skills, he can simply demand as much as Rs250 per day/.
If Labour market of building and construction is controlled by Government, we all builders would be extremely happy. because than we can forcibly pay Only Rs80/- for all workers, no matters they are skilled or NOT. That will certainly increase our profit.
But alas! we Do Not want it, we do not want government to ruin our market. why?
because if we are forced to exploit our own workers because of ridiculousness of Government law of minimum wage, we will see that not a single worker is working with pleasure and interest, if he won’t be making enough profit, enough salary, he won’t devote hs skills perfectly for us too. and that will decrease the quality of our work.
Minimum wage law is despicable in all cases.
Gaurav Says:
November 28th, 2009 at 5:08 amI was readin the article hearing fear of the dark by Iron maiden and it’s one of your fav song for different resaons , yet i felt like every coincidence is not that serendipitous as it seems. Popular Democracy spreads itself on the premises of instilling an unknown fear across the masses of unknown , fear of money, fear of power, fear of strength . In the garb of protecting the masses from this unknown , it vindicates establishing an official Monarchial head ( yeah and i mean monarchial head only) at the top , so no two ways about it. Our Government is also an effect of our society , both complimeting each other always. So ,our society is one of the champions of promoting averages. It’s so addicted with this phenomenon that it never tries to look beyond it, and all these paradoxical terms like minimum wages, education for all , equal economic status , egalitarianism throught socialist ideals etc. The presence of any diversion from these ideals is taken as rebelious efforts. So , we will continue to get insipired by such paradoxical ideals in future also.
shyam Says:
November 29th, 2009 at 2:25 amGood article on wage controls. And now we need an article from you on why price controls are causing sugar shortages in Pakistan. The price controls were ordered by an activist supreme court judge and the results were predictable - shortages and black markets. And the government which caused the inflation and shortages is blaming the hoarders and speculators! Should the Indian government attempt it, the results would be the same.
shyam´s last blog ..Peter Bernholz: Has the US Reached The Hyperinflation Tipping Point?
Unpretentious Diva Says:
November 29th, 2009 at 2:51 amAlthough I have not dealt the issue of Sugar prices separately (that I am supposed to do in near future) yet I have discussed the issue of price control, price rise and shortage earlier.
You may check it out here —
http://www.reasonforliberty.com/anarcho-capitalism/reason-of-price-rise-and-consequences-of-price-control.html
Also, I discussed about the solution of Shortage too here —
http://www.reasonforliberty.com/anarcho-capitalism/cure-of-shortage-and-famine.html
Although the Issue of Sugar is enough important to discuss separately, but right now in India, farmers are already agitating against the government price scale for sugarcane. So I am waiting for that agitation of Farmers to get a little more grip, than I will write about it.
Thebaboose Says:
November 30th, 2009 at 9:21 amFor the people who don’t understand Unpretentious Diva’s argument, this site might help clarify it:
http://www.econlib.org/library/Enc/MinimumWages.html
Unpretentious Diva Says:
November 30th, 2009 at 9:37 amAre you sure you needed further clarifications over the issue discussed in article? Well, I have to restrain myself with wordlimits, yet if you think I needed to push further any particular issue in the article you may mention it, you may mention where the article is not properly clear and that may improve my further articles in future.
Thebaboose Says:
November 30th, 2009 at 5:20 pmHow does “For the people who don’t understand Unpretentious Diva’s argument, this site might help clarify it” equal me needing clarifications? I understand the issue clearly, all I did was offer a site that in my opinion explains the issue better. Why? Obviously some of other commenters - NOT ME - don’t understand the logic of your argument.
Unpretentious Diva Says:
December 1st, 2009 at 1:56 amWell, needs are obviously unlimited, so you may surely need further clarifications/explanations, and if you do so, there won’t be any surprise, neither for me, nor for you. Anyways, it would have been a good gesture from your side if you have suggested some points where i could have improved the post. I guess you failed to mention any such point, or may be you just don’t want to mention them. Its always your choice.
shyam Says:
December 1st, 2009 at 3:13 am@diva
I’d be interested in knowing your views on child labor and laws related to it.
Unpretentious Diva Says:
December 1st, 2009 at 3:30 amI myself was thinking of writing about it sooner or later. So just wait and keep visiting the site.
At present I would like to mention that during the industrial revolution in Europe, when certain discoveries of vaccines made it possible for the children to bear the then prominent diseases while their parents were susceptible to those diseases and consequential deaths, only the opportunity of working and earning made it possible for those poor orphan children who obviously lost their parents to those diseases like malaria, small pox and chicken pox, plagues. In absence of that alternative to work and earn a living, those orphan children were sure to die.
I wrote about children right to work and earn whenever they feel like it some months ago in brief while discussing the issue of Education for all here — http://www.reasonforliberty.com/education/education-for-all.html
Please read it, further I wrote about Child molestation too here while discussing Age of Consent — http://www.reasonforliberty.com/ethics/age-of-consent-child-molestation-and-legal-system.html
Please check both of the articles.
By the way, when you talk about Child Labor, do you oppose anyone like Sachin tendulkar to devote him self for any professional line like say “Cricket” at the age of 16?
Or do you oppose someone like Saroj Khan who gave her first masterpiece at choreography for the bollywood song “Nigahein Milane ko Jee Chahataa hai” at age of 13? Or do you oppose Lata Mangeshkar who started singing professionally at age of 15 when her father died and there was nobody to earn a living for her family but her self, the eldest daughter of Dina Nath Mangeshkar, or Asha Bhonsle who started singing at 17?
May be you oppose Padmini Kolhapuri who starred as child lead in the movie Satyam Shivam Sundaram when she was 8, or Rishi Kapoor when he worked in the legendary movie Mera Naam Joker… Do you really oppose these child workers? Michael Jackson was also a child worker, so was Mozart and beethoven, when they were child.
Anyways, I will write about child labour and related laws in detail in future some day.
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