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Minimum wages have always been considered as a necessary and a well-defined industry standard, Government recently hiked the minimum wages for contract workers to Rs. 10,000. What I was wondering was, are the minimum wages enough to save a worker’s interest?

Suppose I am a firm, I hired a contract worker for a particular job which I value at Rs. 8,500 but due to the industry standards I have to pay him Rs. 10,000 Now when I am paying Rs. 1,500 more, why would I want to have the same worker? Why shouldn’t I go for a more skilled worker. And, that is how the interests of the non-skilled worker are being undermined. Also, if I am paying more than I can then I won’t hire as many people as I was hiring in the first place.

Additionally, suppose I do employ the same worker, then I am not exchanging my money with a more qualified worker, rather I am paying more for the same worker which I would have hired at Rs. 8,500. Loss for the firm, and how would it recover it? By increasing the price of the good. Increase in the prices leads to inflation. And consumer, either will stop having that good (if that good is a luxury) but if it is a necessity, he will shift to a cheaper substitute. Now, this is again a loss to the firm. And it won’t be a single firm in reality, there would be many firms like this. Implying, that it would be a loss to the economy.

Don’t interpret this article wrongly, I don’t intend to say that minimum wages is not an important law. It certainly is, and it does save worker’s interests: it provides more job opportunities, decreases turnover ratio. But, every coin has another side and so does this scheme.

 

 

 

Disclaimer: It is just an opinion piece, I don’t intend to point a finger at the Supreme Court’s decision.

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