Macroeconomics

Minimum wage legislation for domestic workers: Does it work?

  • Blog Post Date 28 November, 2016
  • Print Page

Between 2005 and 2009, for the first time, seven Indian states notified minimum wages for domestic workers. This column evaluates the impact of the legislation in terms of real wages and employment opportunities for domestic workers in four of these states. It finds that notifying minimum wages by itself has limited impact; there is a need for strong and transparent monitoring mechanisms.



Domestic workers comprise maids, nannies, cooks, gardeners and cleaners, and sometimes an intricate mix of some of these functional roles, all employed within households. These workers and their relation with employer households tend to be highly informal, often lacking any kind of formal contracting, fixed remuneration rates, and at times involving grave human rights violations. To minimise such vulnerabilities, domestic workers across the world are collectively seeking formal recognition of their work and labour rights.

At the international level, in 2011, the International Labour Organization (ILO) Convention on Domestic Work (C.189) was adopted. The convention aims to guarantee basic labour rights for domestic worker´s including minimum wages, reasonable hours of work, weekly rest of at least 24 consecutive hours, a limit on proportion of in-kind payment in total payment, clear information on terms and conditions of employment, freedom of association and the right to collective bargaining. So far, 22 countries have ratified this convention while India is yet to ratify. However, in India, there has been a rather encouraging trend in several states to take measures towards formalising domestic workers’ rights. There have been various forms of state-level and nationwide collectivisation of domestic workers. For instance, the National Domestic Workers Federation of India comprises over 10 state-level unions of domestic workers. Minimum wages for domestic workers has been an important demand of domestic workers’ unions and organisations.

Analysing impact of minimum wage legislation in four Indian states

Domestic work, by virtue of not falling under the list of scheduled employment at the Central government level, has been a subject of legislation at the state level. Seven states, namely, Andhra Pradesh, Bihar, Jharkhand, Karnataka, Kerala, Odisha, and Rajasthan have introduced minimum wages for domestic workers. In recent research, we conducted an impact evaluation of minimum wage legislation in four of the states (Andhra Pradesh, Bihar, Karnataka, and Rajasthan) that implemented it between 2005 and 2009 (Gudibande and Jacob 2015). We use data from National Sample Survey (NSS) rounds of 2004, 2009, and 2012, to match households with domestic workers in treatment (the four states that notified minimum wages for domestic workers) and control states (the states that did not notify minimum wages for domestic workers). By conducting an analysis of real wages and employment of domestic workers in these households, we arrive at the following key results.

Firstly, we ask the question if the minimum wages legislation resulted in an increase in the actual wages earned by workers. In the short-run, we observe that real wages increased by 30% (in 2004 prices), between 2004 and 2009, as a result of the legislation. However, we do not find any significant impact on the employment opportunity for domestic workers during the same period. Secondly, we do not find any significant impact on either the real wages or employment opportunity in the long-run (2004-2012).

The results are not at all startling looking at the implementation mechanism of the legislation. In Bihar and Rajasthan, the legislation was merely an official notification by the government, while in Karnataka and Andhra Pradesh, even though the legislation was preceded by several ground-level movements and unionisation, complaint redressal and monitoring mechanisms were virtually non-existent. As a result, the magnitude of impact on real wages was rather limited, and seemed to have waned off completely by 2012. This lack of credible monitoring and enforcement also explains the insignificant impact on employment of domestic workers. These results shed light on the difficulties in implementing minimum wages for workers employed in the informal sector, especially those working in households.

Policy recommendations

Firstly, any minimum wage legislation for domestic workers should be complemented by a legal guarantee of fundamental labour rights that are enjoyed by workers in other sectors. Secondly, minimum wage legislation should make it compulsory to issue formal contracts to domestic workers. Thirdly, minimum wage legislations for domestic workers should be accompanied by incentives for employers to comply with the legislation. For example, incentives in terms of tax credits are used in Belgium and France to increase compliance to regulations in domestic sector employment. Fourthly, efforts must be directed to regulate placement agencies that recruit workers from rural areas for work in urban households. Instituting strict guidelines on maintaining records, having formal contracts, and ensuring guaranteed number of holidays per year and other fundamental labour rights for hired candidates, could be one way of improving implementation of the minimum wage legislation. Finally, more effective ways to formalise the sector should be explored. For example, minimum wage legislation for domestic workers could make the payment of domestic sector wages to the workers’ bank account mandatory (perhaps to the bank accounts associated with their Aadhaar1 cards). Such bank transactions will provide proper documentation for both the employment of domestic workers and wages paid. This can further support an effective monitoring and complaint redressal mechanism.

In conclusion, our study finds that notifying minimum wages alone cannot make much difference to the lives of domestic workers. A strong, transparent and efficient monitoring mechanism accompanying such legislation is critical.

Note:

  1. Aadhaar or Unique Identification number (UID) is a 12-digit individual identification number issued by the Unique Identification Authority of India (UIDAI) on behalf of the Government of India. It captures the biometric identity – 10 fingerprints, iris and photograph – of every resident, and serves as a proof of identity and address anywhere in India.

Further Reading

  • Basu, Arnab K, Nancy H Chau and Ravi Kanbur (2010), “Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws”, Economic Journal, 120(543):244-269. Available here.
  • Besler, P and U Rani (2010), ‘Extending the coverage of minimum wages in India: Simulations from household data’, Conditions of Work and Employment Series no. 26, International Labor Office, Geneva. Available here.
  • Gudibande, Rohan and Arun Jacob (2015), ‘Minimum Wage Law for Domestic Workers: Impact Evaluation of the Indian Experience’, Centre for Finance and Development, Working Paper no. 5, Graduate Institute of International and Development Studies, Geneva. Available here.
  • Neetha, N (2013), “Paid Domestic Work”, Economic and Political Weekly, Vol. 48, No. 43, pp. 35-38.
  • Sankaran, Kamala (2013), “Domestic Work, Unpaid Work and Wage Rates”, Economic and Political Weekly, Vol. 48, no. 43, pp. 85-89.
Tags:
jobs 
No comments yet
Join the conversation
Captcha Captcha Reload

Comments will be held for moderation. Your contact information will not be made public.

Related content

Sign up to our newsletter