Let Good Sense Prevail in Bangladesh’s Garment Industry

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The garment industry in Bangladesh has been subject to several tests of resilience in recent years—global recession, energy shortage, input price increases, and labor unrest. Of late, the labor unrest has escalated apparently triggered by disagreement over re-fixation of minimum wage. The workers, for quite some time now, have been pressing for adjustment in minimum wage that was last increased in 2006, after 12 Imageyears, from Tk. 930* (about $60 in PPP) per month to Tk. 1,662 (about $108 in PPP) per month. The government in April 2010 committed that a new pay-scale for the RMG workers will be announced before Ramadan, and formed a Wage Board for making the wage recommendations. For reasons not yet fully understood, the labor unrest was reignited recently without waiting to hear what the Wage Board’s recommendations are. However, it is abundantly clear that dissatisfaction with the nominal level of the minimum wage is at the center of the discord between garment owners and workers.

The workers are demanding to raise the minimum wage to Tk. 6000 per month while the Readymade Garment (RMG) owners are offering Tk. 2200 per month. The reason for this large gap between two sides, according to one industry insider, arises from two assumptions in minimum wage calculation - per capita monthly requirement and the household size. The workers assume average Bangladeshi household size of 4.8 while a survey conducted by the employers found the number of dependents of entry-level workers to be around 1.8-1.9 on average. The employers argue that the workers at the entry level are mostly 15-16 year olds who are not the main breadwinners and do not have the responsibility of the entire household. Therefore, using household size of 4.8 overestimates the minimum wage. The employers are, however, willing to consider household size of up to 2.2. At Tk. 6000 per month and 4.8 household size, the per capita requirement per month assumed by the workers turns out to be Tk. 1250 while at Tk. 2200 per month and 2.2 household size, the employers’ assume Tk. 1000. Differences in the composition of the consumption basket as well as underlying nutrition and price assumptions might explain this discrepancy.

ImageEmployers also contend that RMG sector is less hazardous compared with other industries where minimum wage is higher (e.g. Tk. 3000 for apprentice in steel re-rolling). RMG sector also apparently offers one of the highest upward mobility; most entry-level workers graduate to higher grades within 0.5 to 1 years and earn more than minimum wage as a result. Besides, the workers have the opportunity to work overtime in nearly all factories and when overtimes earning and bonus etc. are included; their take home salary can be up to two times the minimum wage.

There is also the issue of compensating for the erosion of purchasing power due to inflation. When adjusted for inflation, the minimum wage set in 2006 stands equivalent to Tk. 2,226 per month in 2010. If measured in terms of the price of coarse rice in urban areas, which in 2006 was Tk. 19.1 per kg and at present stands at Tk. 30-33 per kg, the minimum wage in 2006 was equivalent 87 kg of coarse rice and has declined to 50 to 55 kg. At Tk. 2200 per month, real wage will be equivalent to 67 to 73 kg of coarse rice (around 16 to 23 percent real wage erosion), while at Tk. 6000 per month it will be 200 kg of coarse rice (about 109 to 130 percent increase in real wage). The real wage will remain unchanged if minimum wage is fixed at around Tk. 2600 to 2800 per month.

When viewed from the poverty perspective, the upper poverty line measured in 2005 for Dhaka urban areas was Tk. 890 per capita per month. Considering a household size of 2.2 as assumed by the employers, the minimum wage (per month) should have been Tk. 1958 in 2005, Tk. 2249 in 2006 and Tk. 2809 in 2010 after adjusting for inflation. In addition, workers also should be allowed to share in the industry’s economic prosperity along with the owners. Taking this into consideration, the reported government recommendation of Tk 3000 as minimum entry level wage appears reasonable.

Owners worry about loss of competitiveness as production cost is likely to increase with increase in wages. But this is not the only effect. Higher wages may allow workers to eat better to avoid illness and to be able to work harder and more productively. This is known as the efficiency wage theory which may be operative at such low level of wages. Owners must also be aware that agitation to press demand for higher wages in garments is now a regional phenomena. As competing countries concede to these demands, the loss of our competitiveness due to wage increase will be far less than may appear on the surface.

The Wage Board is expected to announce the minimum wage by end July. Both the employers and the workers need to flex their stance to reach a mutually acceptable solution. May good sense prevail on all sides.

 *(1 USD=TK 69.45 as on July 13, 2010)

For more information visit:

Bangladesh Garment Manufacturers and Exporters Association

2010 Bangladesh Economic Update


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