Opinion: Fixing India’s labour wage crisis

The Labour Code offers a once-in-a-generation opportunity to build a fair, productivity-linked wage system that delivers dignity and growth

By T Muralidharan

Two recent experiences forced me to confront a question India can no longer avoid: Are wages in our economy structurally broken? Mallesham, National President of the Bharatiya Mazdoor Sangh, highlighted the distress among contract workers, even in public sector undertakings. Globally, US Senator Bernie Sanders revealed that 60% of American workers live paycheck to paycheck. If that is the reality in a developed economy, India’s situation is even more fragile. Here, a large part of our workforce is not just living paycheck to paycheck; they are living on borrowed money to survive each month.

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According to the Periodic Labour Force Survey (PLFS, 2023), over 45% of regular wage/salaried workers earn less than Rs 10,000 per month, far below what can be considered a dignified living wage. The International Labour Organization (ILO, 2024) further notes that India’s real wage growth has been among the lowest in Asia over the past decade. This is not merely a labour issue. It is a systemic economic risk, a national risk that can derail the future of our youth.

The Structural Imbalance

Over the past two decades, managerial compensation has surged and frontline wages have stagnated in real terms. An article published in Economic and Political Weekly reveals the reality of the organised manufacturing sector compensation:

• Nominal wages have increased.
• But real wages — adjusted for inflation — have remained stagnant for over a decade.
• In more than half the industries, real wages have actually declined.

Meanwhile, managerial wages have grown 200% to 400% faster than worker wages. This divergence is not accidental. It is policy design, not market logic.

The Great Wage Distortion

Within organisations, the wage structure shows a clear pattern:

• Immediate managers earn 3 to 7 times as much as workers.
• Many manufacturing enterprise CEOs earn 200 to 400 times the salary of entry-level workers.
• A few CEOs of Indian IT companies earn nearly 1,000 times the salary of entry-level employees.
• Contract workers earn barely half of formal workers’ wages, which are already in a wage deficit.

Even more striking: wage growth rates for managers are 1.5 to 4.8 times higher than those of workers, despite clear evidence that labour productivity has risen. Growth has been diverted to the top, not shared across the workforce. India has built a system to reward managers. It has not built a system to reward workers.

Missing Science of Worker Wages

Managerial salaries are determined through structured frameworks:
• Job evaluation.
• Role complexity.
• Market benchmarking.

But worker wages lack any scientific basis. They are:
• Derived from minimum wage extrapolation.
• Weakly linked to skill.
• Detached from productivity.

The result:
• No incentive to acquire skills.
• No reward for performance.
• Persistent wage stagnation.
• High attrition for small wage improvements.

India’s demographic dividend has tilted the balance against workers: Excess supply of labour, weak bargaining power, and employers able to suppress wages. In many sectors, the difference between unskilled and semi-skilled wages is negligible due to supply imbalance. This has broken the economic case for skilling.

Minimum Wage Regime: A Broken System

The current system suffers from multiple flaws: infrequent base wage revisions, inadequate inflation adjustments, weak enforcement, and widespread underpayment.

The theoretical progression from living wage → fair wage → minimum wage has not been implemented in practice. The trade-off has consistently gone against workers. An economy where workers borrow to survive cannot sustain growth.

The public sector demonstrates lower wage dispersion and better protection for direct workers. But even here, contract workers are heavily underpaid, and labour contractor exploitation persists. This duality must be addressed as part of reform.

The AI Inflection Point

Artificial Intelligence will compound this imbalance:
• Demand for knowledge work will shrink.
• Entry-level white-collar roles will reduce.
• Demand for skilled physical work will rise.

NASSCOM data shows that entry-level IT hiring fell by nearly 40% in 2024 due to automation and AI adoption. This forces a structural shift from knowledge-driven wages to execution-driven wages. But this transition demands wage correction, skill alignment, productivity linkage and from cost of labour to productivity of labour.

According to the Periodic Labour Force Survey (PLFS, 2023), over 45% of regular wage/salaried workers earn less than Rs 10,000 per month, far below what can be considered a dignified living wage

The fundamental mistake in wage debates is this: we treat wages as a cost, not as a driver of productivity. Compensation must be linked to: measurable output, task mastery, and role-specific performance. Without this, wage increases become unsustainable, employers resist change, and workers remain trapped.

India cannot become a global manufacturing hub or supplier of engineering talent without high levels of task and role mastery at the frontline. But mastery requires: incentives, wage progression and recognition. Low wages destroy this ecosystem.

Why This Moment Matters

Three powerful forces are converging:

• Rising worker distress: From PSU contract workers to informal labour, income insecurity is widespread.
• Global warning signals: Even advanced economies are witnessing wage stagnation and financial vulnerability.
• A policy window has opened: The new Labour Code on Wages presents a once-in-a-generation opportunity to fix the system.

Opportunity for Reset

For the first time, India has the legislative framework to introduce a National Floor Wage. This is not a routine policy change; it is a structural intervention point. If designed correctly, the National Floor Wage can:

• Establish a baseline of dignity in wages.
• Correct decades of under-compensation.
• Reduce inter-State wage disparities.
• Force compliance across sectors.

But if designed poorly, it will become just another administrative number, failing to reflect the real cost of living and perpetuating wage suppression. The new framework must be anchored on: cost of living (housing, food, mobility), minimum savings for a dignified life, and skill-linked progression.

The Labour Code gives India a chance to fix wages for a generation. We must not waste it. India needs a new wage architecture built on five pillars:

• Scientific wage models for workers: Introduce job evaluation frameworks for frontline roles.
• National floor wage (urgent priority): Set a realistic, data-driven baseline linked to cost of living and savings.
• Minimum wage reform: Move from political determination to economic logic.
• MSME wage support: Introduce wage subsidies to enable compliance without hurting viability.
• Eliminate contract worker exploitation: Make principal employers accountable and labour officers responsible.

India stands at a critical inflection point: It cannot afford to be a nation of borrowed livelihoods; it must become a nation of dignified wages.

(The author is Founder Chairman, TMI Group and Quanta People)