Institutions Engaged in Wage Fixation | Labour Economics

In this article we will discuss about the institutions engaged in wage fixation.

The managerial prerogative of setting terms and conditions of employment is increasingly being limited due to either the emergence of trade unions or active intervention by the state.

As a result of the growth of unionism, collective bargaining has become an important method of wage fixation, even though state intervention, adjudication machinery and wage boards retain their primacy in the wage system.

(I) Adjudication:

The government labour policy supports compulsory adjudication system.

Its rationale for doing so is based on the following arguments:

(i) It was feared that collective bargaining might result in work stoppages and slowing down industrialization.

(ii) It was held that strikes should be used as a weapon by the politically motivated trade unions disrupting the industrial relations system.

(iii) It was assumed that the trade unions were still weak at the plant level and therefore, collective bargaining may not result in an equal trial to strength between the unions and the management.

(iv) It was felt that in the absence of compulsory adjudication the state would be handicapped in maintaining industrial peace.

(v) It was hoped that compulsory adjudication would result in terms and conditions of employment which may be considered fair and objective by both workers and employers.

The system of adjudication has led to the enunciation of important principles of wage determination of India.

While adjudication has helped in evolving socially desirable concepts of wage determination, it cannot be said that it has been able to arrive at just solutions to problems of industrial relations. First, it is doubtful whether the courts possess competence in rule-making although they might have been useful in the interpretation of the rules themselves.

Second, because of compulsory adjudication a litigatory approach is being adopted towards wage determination. This has cost a lot both to unions and management, and it has eroded the scope for constructive relationship between them at the plant level.

Work stoppages continue both before a dispute is referred to the court and after the award has been received. Consequently, one of the supposed advantages of compulsory adjudication has really not materialized. This phenomenon can perhaps be explained by the fact that compulsory adjudication does not impose a responsibility on both unions and the management for developing a constructive relationship and honouring the awards pronounced by the courts.

The argument that the trade unions are still weak to undertake successful collective bargaining is belied by the emergence of trade unions in important sectors of the economy. Lack of government’s enthusiasm to encourage collective bargaining may, in fact, have perpetuated the weakness of trade unionism in the country rather than curbed some trade unions from agitating for bargaining rights.

(II) Wage Boards:

Government of India sets up tripartite Wage Boards on industry wise basis to fix and revise pay. These Boards are set up on adhoc basis on the demand of trade unions and employers as there is no law providing for their establishment.

A Wage Board consists of an impartial chairman, two independent members, and 2 or 3 representatives of workers and employers each. The recommendations of Wage Boards are first submitted to the government. The Government may accept modify or reject the recommendations. Once accepted, the parties are requested to enforce the recommendations.

While determining wages, Wage Boards take into account the following factors:

(i) Various wage legislation

(ii) Level of income and its distribution

(iii) Place of the industry in the economy

(iv) Needs of industry in a developing economy

(v) Requirements of social justice

(vi) Need to provide incentive for improving productivity

(vii) Need-based minimum wages

(viii) Industry’s capacity to pay

(ix) Productivity of labour

(x) Prevailing rates of wages

Wage Boards have been helpful in standardisation of wage structures. But they suffer from several weaknesses.

(a) They take unduly long time in completing their task,

(b) Majority of their recommendations are not unanimous and

(c) Their recommendations have not been fully implemented as these are not statutory.

The National Commission on Labour has recommended the following measures to make Wage Boards more effective.

(i) A wage board should be required to submit its recommendations normally within the year,

(ii) Unanimous recommendations should be made statutorily binding,

(iii) The recommendations of a Wage Board should remain in force for a period of five years, and

(iv) A manual of procedure for Wage Boards should be prepared.

(III) Pay Commissions:

Wages and allowances of Central and State Government employees are determined through pay commissions. The disputes arising out of pay commissions awards and their implementation are decided by commissions of inquiry, adjudication by tribunals and the Joint Consultative Machinery.

(IV) State Regulation of Wages:

India aims at rapid economic growth, industrial peace, price stability, equitable distribution of income and progressively rising standard of living for the working class.

In order to realise these objectives, the Government of India regulates wage rates through the following methods of the Minimum Wages Act is to prevent exploitation of labour through payment of unduly low wages.

But the implementation of the Act has not been satisfactory. Minimum wages have not been reviewed and revised for periods longer than five years thereby leading to decline in real wages due to inflation. The Act neither defines minimum wages nor lays down norms for its determination.

(1) The Minimum Wages Act, 1948:

The Government realised that wages in ‘sweated’ trades cannot be left to be determined on the basis of free play of demand and supply in the labour market. Therefore, the government (central and state) prescribes minimum rates of wages in certain sweated and unorganized employments specified under the Minimum Wages Act.

The Act also provides for regulation of overtime rate. The minimum wages can be fixed by hour, day, month or such other longer period. The Act provides for setting up of a tripartite machinery (consisting of representatives of employers, unions and the government) to advise the appropriate Government in the fixation and revision of minimum wage rats.

(2) Section 529-A of the Companies Act, 1956:

This section aims to protect worker’s claim in the event of insolvency of their employer. In case of winding up of a company workers’ dues are to be paid in priority all other debts in full. If the company’s assets are inadequate to meet these in full, these dues and debts due to several creditors are to abate in equal ratio.

(3) The Industrial Disputes Act, 1947:

Under the Act conciliation is compulsory in all wage disputes in public utility services and optional in other industrial establishments. The Act also empowers the appropriate Government to constitute one or more Industrial Tribunals or National Tribunals and to refer a wage dispute to these Tribunals for adjudication.

(4) The Payment of Wages Act, 1936:

The main object of this Act is to ensure regular and prompt payment of wages and to prevent unauthorised deduction and arbitrary fines from wages. It also regulates the rate of payment for overtime work. The Act is applicable to persons employed in factories/industrial establishments and drawing less than Rs. 1600/- per month.

(5) The Equal Remuneration Act, 1976:

The main object of this Act is to prevent discrimination in remuneration on the basis of sex. Under the Act it is the duty of the employer to pay equal remuneration to men and women workers for the same work or work of a similar nature. No discrimination is to be made against woman is recruitment and in conditions of service unless provided for under any law for the time being in force.

(V) Concept of Collective Bargaining:

Collective bargaining relates to group bargaining, as opposed to individual bargaining about wages and salaries and conditions of work in the broadest sense. The groups include trade unions or federations of them on the one side and an employer or his representatives or an employers’ association or federation on the other side. The term ‘collective bargaining’ denotes a procedure under which two parties, namely, workers and management, reach an agreement about wage rates and basic conditions of employment.

Collective bargaining is a process in which representatives of two groups (employers and employees) meet and attempt to negotiate an agreement which specified the nature of future relationship (pertaining to employment) between the two. According to Beach, “Collective bargaining is concerned with the relations between unions representing employees and employers (or their representatives). It involves the process of union organisation of employees; negotiation, administration, and interpretation of collective agreements covering wages, hours of work, and other conditions of employment; engaging in concerted economic action; and dispute settlement procedures.”

According to Date Yoder, “Collective bargaining is the term used to describe a situation in which the essential conditions of employment are determined by a bargaining process undertaken by representative of group of workers on the one hand and of one or more employers on the other. In the words of Fillipo, “Collective bargaining is a process in which the representatives of a labour organization and the representative of business organization meet and attempt to negotiate a contract or agreement, which specifies the nature of employee employer-union relationship.”

“Collective bargaining is a mode of fixing the terms of employment by means of bargaining between organised body of employees and an employer and association of employers acting usually through authorised agents.

A manual issued by the International Labour Office on 1960 defines collective bargaining as “negotiations about working conditions and terms of employment between an employer, a group of employers or one or more employers’ organisations, on the one hand, and one or more representative workers’ organisations, on the other, with a view to reaching an agreement.”

It also asserted that “the terms of an agreement serve as a code defining the rights and obligations of each party in their employment relations with one another, it fixes large number of detailed conditions of employment, and during its validity none of the matters it deals with can, in normal circumstances give grounds for a dispute concerning an individual worker.”

According to a guide for union training issued by the International Confederation of Free Trade Unions, collective bargaining is “a workers Bill of Rights” and serves several objectives of the union. These objectives include unit recognition as an authority in the shop- floor, raised standards of living of workers and greater share for them in the company’s profit, due respect to the workers and their participation in decisions influencing their working conditions, establishment of practices to settle disputes arising in day-to-day situation in the enterprise and workers interests throughout the country.

Collective bargaining is a technique for the accomplishments or the objectives of employees as well as employers and is an integral part of industrial society. “It implies agreement between representatives of management and freely designated representatives of employees relating to the solution of industrial problems with minimum government dictates.” It is, in fact, an extension of the principles and practices of democracy to industry. Since it is a dynamic process, it is still in the process of growth and is constantly expanding. As observed by Slitchter, “Collective bargaining is the beginning of industrial jurisprudence. It is a method of enforcing citizenship right in industry, i.e., management should abide, by certain rules rather than taking arbitrary decision.”

According to John 1, Dumop, the term Collective Bargaining has multiple meanings.

Collective bargaining is:

(i) “A system which establishes revises and administers many of the rules which govern the workers’ place of work;

(ii) A procedure which determines the quantum of compensation which employees should receive and which influence the distribution of economic ills;

(iii) A method of settling disputes during the pendency of agreement and of determining, after its expiry, whether a dispute should be reopened or whether a strike or a lock-out should be resorted to or not.”

On the basis of structural arrangements, collective bargaining may be classified into two broad categories:

(a) Single-employer bargaining and

(b) Multi-employer bargaining.

(a) Single-Employer Bargaining:

Single-employer bargaining take place between one company and either one union, or more than one unions where there are several unions at different plants.

(b) Multi-Employer Bargaining:

Multi-employer bargaining signifies collective bargaining between the employers’ federation and the workers of an industry represented by the federation of all the trade unions. This type of bargaining may take place at local, regional or industry level.