Living Wage vs Minimum Wage: Key Differences To Know In 2024

Living Wage vs Minimum Wage

March 2024 ended with super exciting news for Indian laborers i.e. “India plans to shift from minimum wage to a living wage by 2025.” This has sparked a curiosity about Living Wage vs Minimum Wage among Indians. Are you also one of those curious folks?

Living Wage vs Minimum Wage

 

If yes, then stick to this write-up because we will thoroughly break down the differences between living wage vs minimum wage!

(A) Living Wage vs Minimum Wage: Key Differences

First of all, let’s look at the key differences between Living Wage vs Minimum Wage in the following table-

Differential AspectsLiving WageMinimum Wage
DefinitionA living wage is the minimum income required for a worker to meet their basic needs. It considers essential expenses such as housing, food, healthcare, education, and clothing.The minimum wage is the lowest legal hourly wage that employers must pay their workers.
ScopeBroader: Covers basic necessities beyond just wages.Narrower: Focuses solely on the wage rate.  
PurposeWell-being: Aims to improve workers’ quality of life and ensure they have a decent quality of life.Protection: Intends to prevent exploitation by setting a floor for wages and ensuring financial stability.
CalculationCalculated based on the cost of living in a specific geographic area. Typically determined by government agencies or legislative bodies 
CoverageMay vary depending on the specific needs and circumstances of individuals Applies to all eligible employees within a jurisdiction 
ILO Endorsement Endorsed by the International Labour Organization (ILO) as a progressive approach.Not specifically endorsed by the ILO. 
Potential ImpactCould lift millions out of poverty while promoting sustainable development.Provides a basic safety net but may not cover all essential needs.  
Living Wage vs Minimum Wage: Key Differences

In short, a Living wage helps reduce poverty and income inequality by ensuring workers can afford a dignified lifestyle. Minimum wage may not always ensure workers can afford basic necessities and may not keep up with the cost of living, potentially leading to financial struggles for some workers.

(B) Understanding India’s Minimum Wage System

Minimum Wage

India’s minimum wage system dates back to 1948, now updated under the 2019 Code on Wages Act. It sets different minimum income levels based on factors like where you work, your industry, skills, and job type. But despite updates, the national minimum wage of around INR 178 per day (US$2.15) often isn’t enough to cover living costs in many places.

(B.1) The Regional Divide

There’s a big gap between minimum wages in different parts of India. For example, in Bihar, it’s INR 160 (US$1.93), while in Delhi, it’s INR 423 (US$5.11). This regional variation makes it tough for workers and businesses to keep track, especially since these wages get adjusted for inflation over time.

(B.2) Dark Reality of Indian Workers

Daily wage laborers

For many Indian workers, especially in the informal sector (which makes up over 90% of the workforce), making ends meet on minimum wage is tough. Even though the average monthly salary for unskilled work might range from INR 2250 to 70,000 (US$27.17-$845.40), the median monthly salary is just INR 29,400 (US$355.07).

(B.3) Comparing the Minimum Wages of India to Other Regions

Compared to neighbors in Southeast Asia, India’s average minimum wage of US$95 in 2021 is lower. This means workers often struggle to afford basics, leaving them vulnerable to exploitation.

Is there a hope for change? Fortunately, yes! There’s talk of moving towards a living wage system by 2025, which could make a big difference. The next section describes the same thoroughly!

(C) Why Living Wage vs Minimum Wage is in the news?

Living wage vs minimum wage is dominating the news headlines because India is gearing up to swap out its minimum wage system for a living wage by 2025! This move involves seeking help from the International Labour Organization (ILO) to set up a framework for figuring out and putting into action these new wage standards. Let’s dive into the details-

(C.1) What is a Living Wage?

As you have read earlier, Living wages are basically the minimum income a person needs to cover their basic needs. This includes important stuff like housing, food, healthcare, education, and clothing. The idea is to ensure workers can afford a decent life, which means these wages would be higher than what’s currently set as basic minimum wages.

(C.2) Reason for the changing Minimum Wage to a Living Wage

Minimum Wage vs Living Wage

The ILO recently gave the thumbs up to this idea during their big meeting in Geneva. In India, there are about 500 million workers, and a whopping 90% of them work in what’s called the unorganized sector. Many of them earn a daily minimum wage of around Rs. 176 or more, depending on where they work. However, this minimum wage hasn’t been changed since 2017, and it’s not mandatory for states to follow it. Some states even pay less.

(C.3) Legal Angle

In 2019, India passed something called the Code on Wages, which includes a wage floor. But it’s not in effect yet. Once it kicks in, every state will have to stick to it.

(C.4) India’s Goals and Role in ILO

India is serious about reaching the Sustainable Development Goals (SDGs) by 2030. Officials think replacing minimum wages with living wages could help pull millions out of poverty and make sure they’re doing okay. India’s been with the ILO since the beginning, way back in 1922.

(C.5) What India is asking for?

To make this switch, India wants ILO’s help with things like gathering data, building up skills, and showing how these living wages can actually make a positive difference. The Labour Secretary even suggested that the living wage definition should consider health, education, and living standards, using the same criteria used to measure poverty in India.

So, India’s looking to make some big changes in how it pays its workers, with hopes of making life better for millions across the country!

(D) Understanding the Challenges of Shifting to Living Wages

Moving towards living wages sounds great, but there are hurdles to overcome. Some of the significant challenges are-

ChallengesDetails
Careful PlanningOne big challenge is figuring out how to set a national living wage that works for everyone, considering that living costs differ a lot from one place to another. This means careful planning is needed, especially when each state has its own unique cost of living.
The Strain on BusinessesSmall and medium-sized businesses might feel the pinch because paying higher wages could put a strain on their finances. With labor costs going up, they might find it tough to keep their businesses running smoothly.
Diversity of Living CostsLiving costs vary not only between cities and states but even within different districts. This makes it tricky to come up with a single, uniform living wage rate that fits everyone’s needs.
Understanding the Challenges of Shifting to Living Wages

Will India be able to tackle these challenges? You may wonder. Well, yes! India can tackle these challenges effectively. How? Go through the next section to find it out!

(E) The Bright Side: Shifting to Living Wages from Minimum Wages

Living Wage

Despite the challenges, India is determined to hit its Sustainable Development Goals by 2030. That means creating more jobs and boosting economic growth. Shifting to living wages is seen as a smart move to speed up efforts to lift millions out of poverty while making sure they’re doing alright overall.

Some of the major benefits of shifting to living wages from minimum wages are-

  • Economic Strength: India’s booming economy, growing at a rate of 8.4%, shows that the country can handle higher wages. Plus, workers are feeling the pinch of the current minimum wage, which isn’t enough to cover basic needs, especially with prices going up.
  • India’s Roadmap: By 2025, India plans to switch from minimum wages to living wages. It’s a big step toward making life better for workers. With help from the International Labour Organization (ILO), the government is working hard to create a solid plan for this change.

The key is finding a balance between what businesses can afford and what workers need to live a decent life. It’s a tricky walk, but with careful planning and cooperation, India hopes to pull it off successfully!

Note: Recently, the gig economy in India has been going through a purple patch. To dive into the details, visit the article “The Rise of Gig Economy in India & the Future Ahead.”

(F) Wrapping Up: Living Wage vs Minimum Wage

In a nutshell, understanding living wage vs minimum wage is crucial in 2024. While minimum wage sets the legal floor for what employers must pay, living wage goes further, ensuring workers earn enough to cover basic needs like housing, food, and healthcare. 

Living wage takes into account the cost of living in different areas, aiming to provide a decent standard of living. 

This shift acknowledges the challenges faced by workers in meeting essential expenses and strives to address income inequality. By embracing living wages, societies can empower workers, reduce poverty, and promote financial stability for all!

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Published By: Supti Nandi
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