Minimum wage in Nepalese Labor Market
Minimum wage is the price floor imposed by the government for the welfare of labor. Price floor is the legal minimum on the price at which a good can be sold. It is an attempt by the government to maintain prices at other than equilibrium levels. When a government imposes a price floor, there will be two cases. One the price floor is not binding if the price floor is maintained below equilibrium price level. In this case, the market forces naturally move the economy to the equilibrium level and the price floor has no effect. In other case when price floor is above equilibrium level, such price floor is binding. In this case the market price equals price floor as government imposes such control on prices for the welfare of labors. At this point the quantity supplied exceeds the quantity demanded which results in surplus of labor i.e. unemployment. Since the supply is high some seller are unable to sell all they want at the market price. The sellers who appeals to personal biases of the buyer, perhaps due to racial or family ties, are better able to sell their goods than those who do not. By contrast, in a free market, the price serves as the rationing mechanism, and sellers can sell all they want at the equilibrium price. The impact of minimum wage rate depends on the skill and experience of workers. Highly experienced and skilled workers are not affected because their equilibrium wages are above the minimum wages. Thus, the minimum wage raises the income of workers who have jobs but lowers the income of workers who cannot find jobs. A labor market with a binding minimum wage:
Minimum wage in context of Nepal:
Minimum wages dictate the lowest price for labor that any employer may pay. Wages of workers are considered a principal cause of industrial disputes in Nepal. The prevalence of a low wage rate has aggravated the extent of economic exploitation of employees. An assessment has reflected that employers themselves are retaining a greater part of profits and benefits and only a small part to others sectors including social securities and labor welfare activities. Wages and benefits are not compatible with increasing productivity and overall economic development of the country. So, to ensure workers a minimally adequate standard of living, the Minimum Wage Determination Committee has set the minimum wage rate for formal sector accordingly. Nepalese labor market is subjected to the forces of supply and demand. Workers determine the supply of labor, and firms determine the demand. If the government does not intervene, the wages normally adjust to balance labor supply and labor demand. If government fixes the minimum wage rate above the market equilibrium level, the quantity of labor supplied exceeds the quantity demanded. The result is unemployment. In Nepal the minimum wage was Rs.6200 in 2011 which is not relevant due to the fast changing socio-economic realities. This is the reason trade unions negotiating on behalf of employees are demanding that minimum wages should be doubled to Rs. 12400. They have an argument that prices of everything from vegetables to school fees and house rent are continuously rising and particularly in Kathmandu, an expensive city, even a monthly wage of Rs.12400 for is far from enough for comfortable life. Some others have been asking for Rs. 15000 minimum salary claiming that it is insufficient to survive in towns and its suburbs with the present salary and wage structure. Considering the view of the need of employees as well as the condition of employees the Wage Fixation Committee fixed the minimum wage of workers at Rs. 8000 on 27th May 2013. According to the report published on Nepal Gazettee, the Minimum Wage Determination Committee has set the minimum salary of Rs.8000 – a basic salary of Rs. 5100 a month and dearness allowance of Rs.2900 and daily wage rate of Rs.318 has been fixed. The minimum monthly salary has increased by 29 percent...
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