Kamal Ghorui
Labour, as a factor of production, plays a pivotal role in transforming resources into output in an economy, thereby driving growth and development. Minimum wages, as a policy instrument, are designed to ensure an optimal standard of living to workers. However, in India, non-compliance with pay norms for workers in the informal sector has resulted in a scenario where minimum wages are legally recognised, but practically they seem to be absent.
Let’s delve deeper to understand the magnitude of this paradox in India.
India’s labour market overview
India is a labour-intensive economy. Based on the Periodic Labour Force Survey 2024-25 and Economic Survey 2024-25 and 2025-26, the size of India’s employed population is nearly 64.3 crore. Among the workers, 90-94% are engaged in the unorganised sector, which is majorly agriculture-based, and the rest are in manufacturing and informal services. The e-Shram Portal is a Government of India initiative that aims to create a comprehensive national database of India’s unorganised workers. Until November 2025, the portal had recorded about 31.20 crore unorganised workers, and more than half of them (around 54%) are females.
This clearly shows that India is a structurally “dual economy” characterised by labour market segmentation and informal sector dominance.
The gap beneath the guarantee
Classical economists, including Adam Smith in The Wealth of Nations (1776), viewed wages simply as results of the interplay of demand and supply and bargaining. Smith even implied the existence of a wage floor, saying, “A man must always live by his work, and his wages must at least be sufficient to maintain him.”
In India, minimum wages are not set for informal workers only but rather according to occupations, which makes minimum wage enforcement for informal workers somewhat indirect. Therefore, the Indian labour market is characterised by a huge “wage premium” for employees of the formal sector when compared with the informal/unorganised sector, even among workers with the same level of education and skills. Work Bank research suggests that the wage difference between public and informal sector workers can be as high as 164% to 259%. PLFS Annual Report 2025 shows that, on an average, men and women earn roughly ₹24,217 per month and ₹18,353 per month respectively, while casual workers earn significantly less – men earn around ₹11,830 per month, and women only ₹8,190 per month. This implies an income drop for females by as much as 55.4% and for males by 51%, in casual employment over regular employment, reflecting a pervasive labour market segmentation in the Indian economy. The main factors causing such delays include dichotomy in employment contract forms, difference in working intensity measurement, lack of wage protection, occupational segregation, etc.
The wage gap has, however, led to the creation of a “two-tier consumption structure” where the salaried income earners mainly demand discretionary goods like housing, vehicles, electronics, etc. whereas the casual workers remain confined to subsistence consumption.
Let’s explore some new unorganised work corridors of India which are emerging in the face of these barriers.
India’s untapped labour corridors
Under the Constitution of India, Labour remains a Concurrent subject on which legislative actions could be taken by both Parliament and State Legislatures. Some state-led interventions have created high-compliance “work corridors” in the informal sector.
Employment Guarantee Using MGNREGA-The Scheme has facilitated regular wage payments through Aadhaar Payment Bridge System (APBS) and Direct Benefit Transfer (DBT) methods which show a rise in the proportion of wage disbursal from ~37% (2015) to ~98% (2020).
Tea plantation industry (Assam and West Bengal)
This industry is governed under the Plantation Labour Act, 1951 and displays a high level of wage adherence figured amongst fixed employers, inclusion of in-kind wages (housing, food, healthcare) and unionization.
Other examples of enabling steady wage payments to workers are- Kerala and Tamil Nadu construction sector backed by their respective State Welfare Boards; Karnataka’s latest Gig and Platform Workers Bill, which among other things, introduces guarantees for minimum earnings and accountability for platforms, virtually extends the notion of wage-floor to gig workers, etc.
These cases show that an enhanced wage compliance is better where work ties are monitored and supported by institutionally-based mechanisms.
Bridging policy and practice
Neoclassical theory of Economics holds that wages should be equal to the Marginal Product of Labour (MPL). Hence, any legally enforced minimum wage above the equilibrium wage can theoretically result in a surplus of labour.
In a country like India with an abundant supply of labour, firms might prefer to evade compliance rather than reduce their hiring simply due to the high compliance costs and complexities in filing numerous compliance documents. Such behaviour has been labelled as “regulatory cholesterol” adding an excessive regulatory burden thereby, perpetuating the wage-compliance gap.
Some of the initiatives which can help oversee and reduce this gap are:
- Setting a fixed National Floor Wage, binding all states.
- Introducing mandatory digital wage payment as a way to combat wage theft.
- Using platforms such as the e-Shram for informal workers’ visibility by activating their UANs.
- Granting incentives to MSMEs that are compliant with the wage regulations.
- Refining workers’ bargaining capability through encouraging unionisation, self-help groups, etc.
- Integrating wage compliance with the GST system and formal credit access so as to help work towards formalization
- Using the Labour Identification Numbers (LIN) through the Shram Suvidha Portal;
- Supporting Inspector-cum-Facilitators, web-based inspections, the Code on Wages, etc.
The plan of action for India for its Living Wage Framework 2026 is on the lines of making feasible guaranteed wages for the workers who are the backbone of the economy. On a separate note, even with workforce digitisation, one concern still remains: can a tech-enabled enforcement regime capture and protect the human dignity of a worker in the invisible segments of the economy?
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