A pay raise for some, hardship for many

The implementation of the ninth pay scale, raising basic salaries by 100 to 130 per cent, from July 1 along with a proportionate increase in allowances in the next fiscal year, is good news for government employees. It comes as a huge relief for around 1.5 million public servants amid persistently high inflation. It has been 11 years since the eighth pay scale was implemented, and since then the cost of living has increased markedly. Government employees therefore have a legitimate claim to salary adjustment. The concern, however, lies not in the pay increase itself but in its wider economic and social implications. While government employees are set to enjoy higher pays and perks, the vast majority of private-sector employees are struggling with low wages, job insecurity and little to no retirement benefits. If the salary adjustment fuels another round of inflation, as many fear, it will impose an even heavier burden on millions of private-sector employees and informal workers whose wages have failed to keep pace with rising prices for years.

The latest inflation figures released by the Bangladesh Bureau of Statistics (BBS) provide little comfort. Although inflation eased slightly to 9.16 per cent in June from 9.42 per cent in May, it has remained above 9 per cent for three consecutive months. More importantly, the modest decline has done little to restore the purchasing power of ordinary households after years of relentless price increases.

The more worrying trend is the prolonged erosion of real wages. According to BBS data, wage growth has lagged behind inflation every month since January 2022. In January that year, inflation stood at 5.86 per cent while the national wage growth rate was 5.92 per cent. Since then, consumer prices have consistently outpaced wage increases, meaning workers have experienced declining real incomes for 53 consecutive months. The implications are profound because nearly 86 per cent of Bangladesh's economic activity takes place in the informal sector, which employs more than 50 million people. For these workers, stagnant wages mean a steady erosion of purchasing power.

Against this backdrop, economists warn that the substantial increase in public-sector salaries could trigger another wave of inflation. Higher salaries will lead to higher demands. In an economy already constrained by supply-side constraints, this additional demand could push prices even higher. Such inflation will disproportionately affect those outside the government payroll, particularly private-sector employees and informal workers, who will receive no comparable increase in income. It could also undermine the central bank's efforts to rein in inflation through its tight monetary policy.

At the same time, the disparity between the public and private sectors employees has also become too wide to ignore. In the private sector, many university graduates begin their careers with monthly salaries of only Tk 15,000 to Tk 25,000. Even fresh MBBS doctors after years of grueling study receive starting salaries in the range of Tk 25,000 to 35,000. Meanwhile, a fourth-class government employee will receive a basic salary of Tk 20,000, with gross monthly earnings rising to around Tk 40,000 after allowances are included. The contrast is simply staggering.

The disparity extends well beyond salaries. Government employees enjoy job security, regular promotions, annual salary increments, pensions and a range of allowances covering housing, healthcare, transport and festivals. These benefits provide long-term financial stability that is unavailable to most private-sector workers. By contrast, many employees in the private sector work longer hours under greater pressure, often without adequate healthcare coverage or meaningful employment protection. This disparity is particularly problematic because government and private-sector employees purchase goods and services from the same market and face the same inflationary pressures, yet their ability to cope with rising prices differs significantly.

The consequences extend beyond individual hardship. Persistent disparities in pay and other benefits can seriously undermine morale among private-sector employees. When workers performing comparable or even more demanding jobs perceive that their efforts are rewarded far less generously than those of government employees with similar qualifications, dissatisfaction will inevitably grow. Researches in organisational psychology have long shown that employees who believe workplace rewards are unfair are more likely to disengage, reduce their effort and seek employment elsewhere. Similarly, workers who face heavy workloads without adequate financial rewards or employment security are more susceptible to stress, burnout and declining job satisfaction. For a country where the private sector generates the overwhelming majority of employment and drives economic growth, such trends should be a matter of serious concern.

Moreover, the new pay scale came at a time of economic slowdown. Private sector is hamstrung by a sharp rise in lending rates, energy crisis and a quantum leap in the cost of doing business. Consequently, almost every industry is now in a mood to downsize, which is not labour-friendly. It means companies are employing the minimum number of workers for maximum work at minimum pay.

The fiscal implications of the new pay scale also deserve careful scrutiny. It is estimated that implementation of the pay scale will cost the government an additional Tk 1 trillion annually. This is a significant financial commitment at a time when public finances are already under pressure from sluggish revenue collection, a growing debt burden and rising expenditure commitments. Whether the government has the fiscal capacity to sustain such an increase is therefore a matter of concern. The additional cost is likely to be met through higher government borrowing, further widening the fiscal imbalance. At the same time, as a larger share of the budget will be consumed by the government's operational costs, it could shrink the space for investment in development projects, skills development and the improvement of public services.

Now, the least the government can do to cushion the impact is to improve the quality of services in government offices, curb corruption and remove bureaucratic bottlenecks that hinder private-sector growth. At the same time, it is imperative to expand social protection for informal workers. Market monitoring must also be strengthened to prevent businesses from using the government salary increase as a pretext for price hikes.

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