Addressing Minimum Wage Disparities to Ensure Basic Living Standards

The variation in these wages across the states raises critical questions about their effectiveness.

Image used for representation only.

(Photo: PTI)

In her first decision after assuming the position of Delhi’s chief minister, Atishi announced a hike in minimum monthly wages for skilled, semi-skilled, and unskilled workers.

After the revision, skilled workers, whose minimum monthly wage stood at Rs 21,215 before, will see a 3.3 percent rise in income; semi-skilled workers, whose minimum wage was Rs 19,279, will see a 3.6 percent increase; and unskilled labourers, whose minimum wage was Rs 17,494, will see a 3.2 percent rise in income.

India's minimum wage policies, set to safeguard workers and provide them with a basic standard of living, have long been a cornerstone of labour regulations. Yet, the variation in these wages across the states (with little mapping done with respect to their cost of living) raises critical questions about their effectiveness.

While some states have adopted progressive wage structures, others lag, leaving their workers struggling to meet basic needs.

The minimum wage in India is not a one-size-fits-all figure; instead, it is highly decentralised, varying by state, sector, and the skill level of workers. For instance, as of June 2024, states such as Delhi and Haryana boast some of the highest minimum wages in the country, designed to meet the high cost of living in these urban centres.  

On the other hand, states like Bihar and Uttar Pradesh have some of the lowest minimum wages, which reflect the lower costs of living but often fail to provide workers with enough to cover essential expenses.

This variation is due in part to India’s federal structure, where labour policies are often the jurisdiction of state governments. As a result, there is no uniformity in the way minimum wages are calculated and implemented.

While this flexibility allows states to tailor their wage policies to local economic conditions, it has also led to significant disparities in how workers are compensated across the country.

The Ease of Living Index (EoL), developed by the Ministry of Housing and Urban Affairs, provides a holistic assessment of living conditions across Indian cities. This index evaluates the quality of life, economic ability, and sustainability of cities through various indicators such as housing, health, education, mobility, and safety ​(EOL 2019).

The correlation between minimum wages and these indicators is significant, as wage levels directly affect workers' ability to afford basic services.

Minimum wage vs Ease of Living rank in top and bottom cities.

(Source: Authors' Calculations)

For instance, a higher minimum wage in a state like Delhi allows workers to better afford housing, healthcare, and education. This directly improves their standard of living, reflected in Delhi's higher EoL rankings.

Conversely, in states with lower minimum wages like Bihar and Jharkhand, workers often struggle to afford basic necessities, resulting in lower scores on the EoL index.

Housing

One of the most critical areas where minimum wage impacts the standard of living is housing. The cost of housing, especially in urban areas, is one of the largest expenses for workers. 

In cities with high minimum wages, such as Delhi, the government has implemented various housing schemes like Pradhan Mantri Awas Yojana (PMAY), which aim to provide affordable housing to the urban poor​ (EoL). Workers earning a higher minimum wage are better positioned to benefit from these programs, as they can afford the down payments and monthly instalments required to purchase subsidised homes.

In contrast, in states with lower minimum wages, such as Bihar, the lack of sufficient income often forces workers into informal settlements or overcrowded housing.

This not only affects their physical health due to poor living conditions but also contributes to social inequality, as the gap between the rich and poor widens. A lack of affordable housing exacerbates poverty, making it more difficult for workers to break the cycle of low wages.

States with lower wages typically perform poorly in the ease of doing business index, indicating a direct link between wage policies and housing standards.

Healthcare

Access to quality healthcare is another vital component of the standard of living, and minimum wage levels play a pivotal role in determining workers' ability to afford medical services. 

In states like Kerala, where the minimum wage is relatively higher compared to many northern states, workers can better afford healthcare, either through private services or government schemes. Kerala’s robust public health system further amplifies this advantage, ensuring that even lower-income workers have access to essential health services.

However, in states like Uttar Pradesh, healthcare affordability is a significant issue. Workers in these regions often rely on overcrowded public health facilities, and when these services fall short, they have little recourse but to avoid seeking medical care altogether. 

This lack of access to quality healthcare leads to poor health outcomes, further reducing the quality of life for low-wage workers. The EoL Index measures health indicators such as the availability of hospital beds, the prevalence of waterborne diseases, and access to healthcare professionals, all of which are severely impacted in states where the minimum wage is insufficient to meet the costs of healthcare.  

Education

Education is widely recognised as a pathway out of poverty, and states with higher minimum wages typically offer better access to quality education. In states like Tamil Nadu, where minimum wages are relatively higher, workers can afford to send their children to better schools and invest in educational resources like private tutoring and digital learning tools. This, in turn, leads to higher literacy rates and better long-term economic prospects for future generations.

In contrast, in states with lower minimum wages, education often takes a backseat to immediate survival needs. Parents working for low wages may be unable to afford school fees, uniforms, and books, leading to higher dropout rates, particularly among girls.

This perpetuates a cycle of poverty, as children who leave school early have fewer opportunities for upward mobility. The EoL Index evaluates education indicators such as pupil-teacher ratios, dropout rates, and household expenditure on education, all of which are directly influenced by wage levels​.

Another pillar of the Ease of Living Index—sustainability—examines the environmental aspects of urban living, including green spaces, air quality, and energy consumption. In states with higher minimum wages, workers are more likely to have access to clean, sustainable environments. For instance, states like Karnataka, with a relatively high minimum wage, have implemented policies to increase green spaces and reduce pollution, improving the overall quality of life.

In contrast, states with lower minimum wages often struggle to address environmental issues. Low-income workers in these regions may live in areas with high pollution levels, inadequate sanitation, and limited access to green spaces, all of which negatively impact their health and well-being.

Conclusion

States with higher minimum wages tend to perform better across all indicators of the Ease of Living Index, including housing, healthcare, education, and sustainability. This was also shown in our previous work on creating the Access (In)Equality Index. Workers in these states are more likely to afford basic necessities, invest in their families' futures, and enjoy a higher quality of life.

However, the significant disparities in minimum wage policies across states highlight the need for wage reform. To improve the standard of living for all workers, it is essential to adopt a more uniform approach to wage setting, one that considers the cost of living and the need for basic human dignity. Raising the minimum wage in states with lower wages would not only improve workers' quality of life but also stimulate economic growth, reduce poverty, and create more sustainable urban environments.

A universally applied basic income/wage structure categorised on the basis of work (skilled to semi-skilled), could be a necessary progressive measure in this direction (see here for a larger discussion on this).

As India continues to urbanise and modernise, addressing these wage disparities is crucial for ensuring that all citizens, regardless of where they live, have access to a decent standard of living. 

(Deepanshu Mohan is a Professor of Economics, Dean, IDEAS, Office of Inter-Disciplinary Studies, and Director of Centre for New Economics Studies (CNES), OP Jindal Global University. He is a Visiting Professor at the London School of Economics, and a 2024 Fall Academic Visitor to the Faculty of Asian and Middle Eastern Studies, University of Oxford. Aryan Gopalakrishnan is a Research Analyst with CNES and graduated from Jindal School of Government and Public Policy. This is an opinion article and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)