A review of the consequences of the Indian minimum wage on Indian wages and employment

Minimum wage policy has gained momentum and many countries have strengthened their minimum wage systems to address working poverty and inequality. As part of this development, it is important to look at the implications of minimum wage policy on wages and employment. The paper looks at the literature that analyses the aforementioned relationship in the Indian context.

This paper reviews the literature that relates minimum wages in India to wage and employment outcomes. The entire empirical literature on the Indian minimum wage is not large, and the segment focused on wages and employment comprises only a few analyses. It reports that minimum wages result in higher wages. However, this occurs not near the bottom of the wage distribution, as would be expected from a wage floor, but near the middle of the distribution. This suggests a lighthouse effect; a minimum wage that is aspirational, acting as a benchmark to which various wages are compared, rather than a floor. The only statistically significant, negative effect on employment that is reported is for child labour. Other estimates are either not statistically significant or are positive.