If not designed right, well-meaning policies do not necessarily change lives
“One of the great mistakes is to judge policies and programmes by their intentions rather than their results,” said legendary American economist Milton Friedman in a television interview in 1975. Friedman was pointing out to the precious fact that policies that look fair and just at first sight often end up hurting the very people they were supposed to help.
Today, his words of wisdom can help Kerala in dealing with its discontented nurses. Nurses in the southern State called off their indefinite strike recently after the State government agreed to their demand for a minimum wage of at least ₹20,000 per month.
Supporters of the higher minimum wage promised by the government believe that nurse wages are presently set too low by private hospitals arbitrarily. So, they say, it is justified that the government intervenes to protect the rights of nurses. As much as the argument of these do-gooders sounds convincing, the higher minimum wage will not benefit the nurses. If properly implemented, a higher minimum wage can indeed force private hospitals to pay higher wages for nurses. But it will do little to prevent hospitals from reducing the number of nurses that they employ, or take other steps to adjust to the reality of higher nurse wages. This is because, contrary to what many believe, wages are not determined arbitrarily by private hospitals.
Availability of labour
Instead, nurse wages simply reflect the relative scarcity of labour, a fact that hospitals need to take into account when they decide to employ nurses. So, a relatively large supply of nurses causes their wages to drop and allows hospitals to employ more nurses. Conversely, when the supply of nurses is relatively small, it results in higher wages that push hospitals to employ fewer nurses. A minimum wage set by the government, in other words, will do very little to change the underlying reality of the supply of nurses in India far outstripping demand — which explains their low wages. Instead, as mentioned, the minimum wage will only prevent hospitals from fully absorbing the available supply of nurses — except in very rare, unrealistic cases. The newly proposed minimum wage of ₹20,000, in fact, is far above the prevailing market rate for nurses. So it is only a matter of time before hospitals retrench their nursing staff, lower their working hours, or, if possible, automate their roles.
If the nurse unions resist such cost-saving measures by hospitals, hospitals will look to accommodate them under political pressure. This can, of course, prop up the wages of nurses belonging to unions by artificially restricting the supply of nursing services. But it won’t come without any cost. Non-unionised nurses willing to work for cheaper wages will be stopped from competing against the unions, and instead forced to look for other jobs that pay lower. So, while the minimum wage looks like a tool to empower all nurses, in reality, it works against the interests of the weaker ones who lack political voice.
“One of the great mistakes is to judge policies and programmes by their intentions rather than their results,” said legendary American economist Milton Friedman in a television interview in 1975. Friedman was pointing out to the precious fact that policies that look fair and just at first sight often end up hurting the very people they were supposed to help.
Today, his words of wisdom can help Kerala in dealing with its discontented nurses. Nurses in the southern State called off their indefinite strike recently after the State government agreed to their demand for a minimum wage of at least ₹20,000 per month.
Supporters of the higher minimum wage promised by the government believe that nurse wages are presently set too low by private hospitals arbitrarily. So, they say, it is justified that the government intervenes to protect the rights of nurses. As much as the argument of these do-gooders sounds convincing, the higher minimum wage will not benefit the nurses. If properly implemented, a higher minimum wage can indeed force private hospitals to pay higher wages for nurses. But it will do little to prevent hospitals from reducing the number of nurses that they employ, or take other steps to adjust to the reality of higher nurse wages. This is because, contrary to what many believe, wages are not determined arbitrarily by private hospitals.
Availability of labour
Instead, nurse wages simply reflect the relative scarcity of labour, a fact that hospitals need to take into account when they decide to employ nurses. So, a relatively large supply of nurses causes their wages to drop and allows hospitals to employ more nurses. Conversely, when the supply of nurses is relatively small, it results in higher wages that push hospitals to employ fewer nurses. A minimum wage set by the government, in other words, will do very little to change the underlying reality of the supply of nurses in India far outstripping demand — which explains their low wages. Instead, as mentioned, the minimum wage will only prevent hospitals from fully absorbing the available supply of nurses — except in very rare, unrealistic cases. The newly proposed minimum wage of ₹20,000, in fact, is far above the prevailing market rate for nurses. So it is only a matter of time before hospitals retrench their nursing staff, lower their working hours, or, if possible, automate their roles.
If the nurse unions resist such cost-saving measures by hospitals, hospitals will look to accommodate them under political pressure. This can, of course, prop up the wages of nurses belonging to unions by artificially restricting the supply of nursing services. But it won’t come without any cost. Non-unionised nurses willing to work for cheaper wages will be stopped from competing against the unions, and instead forced to look for other jobs that pay lower. So, while the minimum wage looks like a tool to empower all nurses, in reality, it works against the interests of the weaker ones who lack political voice.
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