Minimum Wages in the Presence of Wage and Non-Wage Sectors in India: An Exploratory Analysis of the Non-Farm Sector

Mohit Sharma () and Brinda Viswanathan
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Mohit Sharma: Ph.D. Scholar, Madras School of Economics, Chennai
Brinda Viswanathan: Professor & Dean Research, Madras School of Economics, Chennai

Working Papers from Madras School of Economics,Chennai,India

Abstract: The Indian labour market is characterized by large informality and self-employment. While most of the literature in developing nations on minimum wages has focused on the impact of minimum wages on wages and the employment of the ‘wage earners’, this leaves out a large proportion of the self-employed workforce (non-wage earners). Using the novel data on minimum wages and with the availability of earnings data for self-employed workers in the recent Periodic Labour Force Survey (PLFS) rounds 2017-18, 2018-19, and 2019-20, this study attempts to explore the role of minimum wages on the earnings of all categories of workers including self-employed in the non-farm sector. We find that for unskilled and semi-skilled workers who have studied up to secondary education, higher levels of minimum wages reduce the earning gap between regular, own-account, and casual workers. This might indicate the “lighthouse effect”, where both casual and own-account workers (primarily engaged in informal activities) use minimum wages as a numeraire to carry out earnings negotiations. It has also been found that a higher level of minimum wage reduces the earnings disparity between males and females.

Keywords: Minimum wage; Informality; Self-employment; Lighthouse effect; India (search for similar items in EconPapers)
JEL-codes: J21 J23 J30 J31 J46 J50 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2022-07
New Economics Papers: this item is included in nep-inv and nep-iue
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