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Erosion of real wages

Asjadul Kibria | October 22, 2020 00:00:00

Loss of hundreds and thousands of jobs, if not millions, during the pandemic is a cruel truth. Many of those who have survived in their jobs are apparently fortunate. They, however, face wage cut or irregular pay. Nevertheless, the wage cut is better than job loss for many as they have at least some nominal earnings. The actual scenario is, however, unclear as there exists no adequate data in this regard.

Bangladesh Bureau of Statistics (BBS), however, conducted a perception survey during the third week of September last to track the impact of Covid-19 on the people's livelihood. The survey result showed that the rate of unemployment in July increased to 22.39 per cent, which was 2.3 per cent in March, due to the devastating impact of the deadly virus. The job situation, however, improved significantly in September as the unemployment rate came down to 4.0 per cent. It means that many of those who had lost their jobs were able to rejoin their previous jobs or find alternative ones.

The perception survey also showed that both the income and expenditure of each household declined due to Covid-19. There is, however, a sharp decline in income compared to spending. The average monthly income of household declined by 20 per cent and came down to Tk 15,492 in August from Tk 19,425 in March. At the same time, household expenditure fell by 6.14 per to Tk 14,119 in August from Tk 15,403 in March. In other words, the purchasing power of people declined significantly during the period. BBS is yet to upload the survey findings on its website for all.

The perception survey does not focus on the wage situation adequately. So, it is not easy to know the condition of the real wage of the working people. The claim in the survey that unemployment reduced significantly, after a sharp rise, within four months needs more substantiation. Monthly Wage Rate Index (WRI) may be taken into consideration as a proxy indicator to get some idea about the real wage situation.

The WRI tracks the movement of nominal wages of low paid skilled and unskilled labours over time in agriculture, industry and services in 44 occupations. WRI in September 2020, as released by BBS, showed that nominal wage increased nationally on average by 5.95 per cent in the month under review while the rate was 6.51 per cent. A possible interpretation is: though nominal wage increased in September this year, the quality of the rise is lower than the rate of the same month in the previous year.

A trend analysis of the WRI also showed that the growth rate of the nominal wage declined in October last and then started to increase slowly. It again began to fall in February and came down to the lowest level of 5.82 per cent in July. Country's combined average nominal wage rate of agriculture, industry and services in the last fiscal year (FY20) increased by the slowest pace in the previous five years. What is a little bit confusing is that there is no decline in nominal wage, according to the WRI, despite coronavirus and the consequent slowdown in the economy. Instead, a drop in the rate of wage hike is there.

One problem to decode the WRI is that BBS does not provide any explanatory note on the monthly change in the index. When contacted, several officials also declined to talk in this connection.

Nominal wage is the amount of 'money received either in cash or in-kind in a day for standard daily working hours' or 'earnings of a low-paid labour who works on an hourly basis.' The index excludes 'salary paid and high contract-based earnings.' Thus the WRI represents the nominal wage situation of low-income people. It doesn't provide any indication of the real wage scenario or actual purchasing power of labourers.

By adjusting the nominal wage with the inflation rate, one may get the real wage. The nominal wage is the wage measured in money (take value in Bangladesh). The real wage is the nominal wage adjusted for changes in purchasing power. In a simple mathematical way, the nominal wage is divided by the general price level.

There was a time when BBS used to publish the real wage index of industrial workers regularly. The publication, however, discontinued since FY06. So, there is no national-level data or index for real wage scenario. It is a matter of disappointment that the national statistical agency is indifferent in this regard.

A proxy indicator of real wage may be comparing the inflation rate and WRI in a particular month. In September this year, the rate of price inflation was 5.97 per cent when WRI increased by 5.95 per cent. It indicates that real wage turned negative in this month. So, a labourer has to spend all his or her nominal wage to bear the regular expense. Moreover, he or she also borrow from other sources to meet the rest of the need.

The erosion of real income of low-paid labours and workers is also reflected in different things. The rise in prices of essentials, especially food items in the last few months demonstrates the struggle of low-income people. Data collected by BBS showed that the average retail price of refined rice increased to Tk 68 per kg in September from Tk 64.45 in July. At the same time, the average price of semi-coarse rice (Paijam) increased to Tk 65.70 from Tk 63.30. Again, the price of coarse rice (Irri) increased to Tk 52.45 from Tk 48.45 in Dhaka city.

Furthermore, a big job cut and winding up of many small trades due to lockdown made a good number of people jobless. Many of them have also been forced to accept alternative jobs with low and irregular wages for survival. Thus, erosion of real income is now taking a heavy toll on a ratherlarge segment of the population.

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