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The minimum wage debate

  • Published at 03:20 pm July 24th, 2018
File photo: The RMG industry has experienced phenomenal growth in Bangladesh Rajib Dhar/Dhaka Tribune

We need to strike a balance between social needs, ability to pay, and macroeconomic issues

Revising the minimum wage for garment workers has become an important topic on two counts: Public policy perspective, and political perspective.

As part of public policy, it reflects with various macroeconomic scenarios, such as the notion of social safety net, addressing inequality, and enhancing workforce productivity.

As for the political aspect, it reflects on the events that have taken place since the Rana Plaza disaster that took place five years ago. It deals with aspects such as industrial improvement along social development, prevention of further clashes between workers and management, and the most obvious implication -- that of the vote bank with the national elections due ahead.

The minimum wage is an attractive policy tool for poverty reduction and social justice. It is a simple and visible way for the government to show its commitment to support those at the bottom of the income distribution, requiring no significant direct government expenditures, which can easily be targetted to the working poor.

The major discussion of minimum wages is obviously with regards to the amount to be set, whether this amount will be Tk16,000, as proposed by the workers’ side, or Tk6,360 as proposed by the factory owners’ side.

However, one also needs to look at the history of setting minimum wages. We need to analyze the conditions of setting wages in the past, and the possible consequences.

In the beginning, industry owners were vehemently opposed to the decision.

One employer, with support of the associations, moved to High Court, challenging the validity of national minimum wage. The court stayed the government’s decision on the ground of procedural deficiencies to determine the national minimum wage.

The minimum wage board is run through a formation of four parties (government, owners, workers, and an independent panel member) mandated for meeting and deciding wages (theoretically following democratic procedures).

However, revision (and fixing) of minimum wages has never experienced a smooth process. Several issues came up due to demands and protests from workers, and often these protests ended up in violent activities.

There was unrest in 2006, 2010, 2013, 2016, and 2017. The meetings required to decide the wages were not as regular. In fact, if anything at all, decisions seemed to be taken based on sporadic meetings. For instance, the revision of the minimum wages for garment in 2018 was scheduled to have several meetings, but has had just thrice till date.

The minimum wage is problematically low. Every time a minimum wage was declared, it was not enacted voluntarily. The workers’ protests, every single time, proved to be crucial for wage revisions. Indeed, historical trajectories reveal that the buildup of the protests is quite organic. At the same time, the process of fixing a particular wage is also quite technical, and depends a lot upon the owners, the government, and the experts.

There is no denying that while the owners and governments are enmeshed (29 MPs in the ninth parliament are owners of the RMG), the workers’ representatives often collude with the government (associated with the pro-workers association). Therefore, worker representation and reflections become a top-down approach.  

Historical trajectories also denote that while there is unity among owner representation for setting/proposing wages, there is a lack of unity among the workers’ representatives. Owners’ representative (BGMEA) proposed Tk6,360. From the workers’ sides, Jatiya Sramik League proposed Tk12,000, whereas Bangladesh Garment Sromik Samhati and other workers’ associations demanded Tk16,000 as the minimum wage.

As per the Asia Floor Wage, the living wage for garment workers is Tk37,661 given the conditions of 2017. The current minimum wage of Tk5,300 is just 19% of the living wage. Whereas “a minimum standard living comprises food, clothing, house rent, education, health, entertainment, and savings, and so on,” fixing Tk5,300 as the minimum wage for workers in 2013 was not adequate for maintaining a decent life.

It has also been revealed that around 64% of RMG workers did not earn enough to meet their basic needs. In 2013, apart from fixing the wages, 5% yearly increment (cumulative) on the basic amount was also decided. Theoretically, even if that process is systematically followed, the minimum wage would be Tk7,753, which is contradicting the BGMEA’s proposal.

Historical trajectories denote that while minimum wages are scheduled to be revisited, owners often claim that the increasing wages may not be feasible for many factories (especially for the small and medium-sized ones), and they will be closed down. However, the factory owners’ argument of “going out of business” due to wage increment may not be justifiable particularly after the post-Accord/Alliance and NTPA-run safety initiatives.

If that’s the case, then we should find out how many factories have shut down for salary hikes in 2010 and 2013. Factories may close down for other reasons, including for non-fulfillment of safety standards. Even while the introduction of accord and alliance may have initially received a negative perception among the entrepreneurs, later on, entrepreneurs’ mindsets have changed (derived from a recent survey-based research), as most of them think participation was valuable.

According to them, Bangladesh is one of the safest RMG-producing countries, and the development in terms of building safety has been phenomenal. So discussion regarding “going out of business” may not be realistic given the future potential of apparel export growth from Bangladesh.

The minimum wage-fixing criteria does not represent precise models, nor does it pretend to give final and unequivocal answers to questions on how suitable minimum wage levels should be determined in a given situation to contribute as effectively as possible to the general welfare.

However, one needs to balance between social needs, ability to pay, and macroeconomic issues. There is a need to agree upon on what basis the wages would be provided for as a requirement to meet living wage provisions, and what institutional modalities need to be placed for enforcing the statutory minimum.

While fixing the wage revisions, historical trajectories will provide impetus to be cautious about the possible unrest, not to follow undemocratic pathways, and apprehend the broader concept of competitiveness, which denotes not only safety, but also the rise of the wages to meet decent living standards for the workers.

Kazi Mahmudur Rahman, PhD, is involved with the Centre for Enterprise and Society (CES), University of Liberal Arts Bangladesh (ULAB).

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