Delhi's minimum wage hike: Flow of jobs to Noida, Gurgaon is inevitable

Many questions about the state govt's minimum wage increase

The Delhi government has proposed increasing minimum wages in the National Capital Territory. The extent of the proposed hike in minimum wages is substantial. Unskilled workers will have to be paid at least Rs 13,350 per month, as compared to Rs 9,724 currently. Semi-skilled workers will see their minimum compensation rise from Rs 10,764 to Rs 14,698, and skilled workers from Rs 11,830 to Rs 16,182. Overall, this is a 37 per cent increase, less than the 50 per cent recommended by an earlier committee, but nonetheless worthy of note. After a disagreement with the then Lieutenant Governor of Delhi on the subject of whether the previous committee was empowered to revise wages, the Delhi government had created a new committee, which knocked down the proposed increase marginally. Critics of the government have been swift to claim that elections to the Municipal Corporation of Delhi, which the Aam Aadmi Party hopes to wrest away from the Bharatiya Janata Party (BJP), are approaching and may have been a factor in the decision.

There is, of course, no doubt that minimum wages, in general, should be examined at regular intervals and revised. However, this should, as far as possible, be a transparent process, so no arbitrariness exists and there is no scope to attribute motives to such decisions. Certainly, the increase does not seem disproportionate when compared with the Centre’s decision, in August 2016, to hike nationwide minimum wages by 46 per cent. Delhi is an expensive city, and costs of living are high up and down the board. Yet, there are still many questions that can and should be asked about the economic logic behind this decision. 

It is known that minimum wages can have the effect of depressing employment. In cities such as Delhi, this is an exceptionally pressing problem. After all, many parts of the National Capital Region are not part of the domain of the Delhi government. The satellite city of Noida, for example, will continue to be subject to the restrictions on wages determined by the Uttar Pradesh government in Lucknow,  which will naturally be less stringent than those imposed by the Delhi government. The flow of jobs out of Delhi to Noida, and to Gurgaon in Haryana, will be a natural consequence. It is to be hoped that some of these general equilibrium effects were taken into account by the committee. 

In general, India has a jobs crisis, and any decision that reduces the private sector’s capability to create additional employment should be subject to the most careful scrutiny. India has a history of labour protection legislation that ends up hurting labour, and this should not become one of them. There are safeguards that might usefully be put into place to deal with such dangers. The most important are those that make sufficiently transparent the mechanisms by which the minimum wage is set and revised, and recognise the overall welfare implications on the working class of any such decision. The BJP has claimed that only 10 per cent of workers in the NCT receive the minimum wage. Efficient implementation of existing levels, instead of raising those levels, might have been a better first step for the government to have taken.