How is Bangladesh faring?

During the second half of the twentieth century and the first decade of the current millennium, development paradigm has undergone several shifts in focus. The journey started with the trickle down approach -- many economists taking the view that the pie should be allowed to grow first before thinking about redistribution, and policy should focus on growth. The poor, according to the views, would benefit from growth through the process of trickle down. When the approach was not working, there was a shift to redistribution with growth, structural adjustment and pro-poor growth. And now the ship has docked at inclusive growth -- a term that was basically introduced by development partners.
Although the term inclusion may be conceptualised in different ways, it is important to focus on both the process and outcomes. While the process of inclusion can be captured through measures relating to employment, outcomes can be assessed in terms of income relative to some benchmark of poverty, inequality or other dimensions of human development like education and health. Another important element of inclusion is the degree of social protection provided by a society.
Labour market outcomes are of critical importance in making economic growth more inclusive: Characterised in the manner mentioned above, labour market outcomes like employment, wages, returns to self-employment and social protection are of direct relevance to inclusive growth. A number of questions may be raised in this context.
l Is economic growth leading to the growth of productive employment that is needed for absorbing the new members of the labour force?
l Is economic growth creating opportunities for workers to move from sectors characterised by low productivity to those with higher productivity?
l Is employment contributing to poverty reduction through higher incomes of workers?
l Is access to social protection expanding along with economic growth?
l Are real wages rising to contribute to reduction in poverty and inequality?
l What is happening to the share of wages in national income and in value added?
The experience of countries that have been successful in their development effort, e.g., Republic of Korea, Malaysia, and Taiwan (China) shows that economic growth was associated with high rate of labour absorption in modern sectors, and a corresponding reduction in the share of jobs in the informal economy and a rise in the access to social protection. But employment growth was not achieved at the cost of labour productivity. In fact, labour productivity increased and real wages also rose.  What has been the experience of Bangladesh? Addressing this question in a comprehensive manner is not possible within the space limitation of a newspaper article. Instead, the present article will focus on two basic questions:
l Has acceleration in economic growth been associated with growth of productive employment in sectors with higher labour productivity?
l What has been happening to real wages of workers?
The employment generating capacity of the economy has been declining: An important question is: what has been the rate of employment growth for every percentage growth in GDP? In Bangladesh, the record over time has been somewhat mixed.  Employment growth per unit of GDP growth for the economy as a whole registered a small increase during the first half of the 2000s compared to the second half of the 1990s. That happened across sectors -- agriculture, manufacturing, construction and services. However, there was a reversal in that trend after 2005.
During the 1990s and up to 2005, GDP growth of about 1.8 per cent was required to attain 1.0 per cent growth in employment. During 2010-2013, this figure rose to about 2.6 -- pointing to the decline in the ability of growth to create jobs. And that happened despite manufacturing becoming more employment intensive. Employment growth per unit of GDP growth declined sharply in agriculture and construction, and the declining trend in services continued.
Several things seem to be happening. On the one hand, the manufacturing sector, which is dominated by the labour intensive ready-made garment industry, continued to be employment-intensive to the extent that employment growth exceeded that of output growth (which implies decline in labour productivity). On the other hand, the ability of agriculture to absorb additional labour declined sharply. And in the construction sector, after a high rate of growth of employment during 2006-2010, there was a reversal in the subsequent years. The net result was that overall employment growth per unit of GDP growth registered a decline.
Several points may be worth noting. First, for a variety of reasons, agriculture can no longer be counted on as a source of much additional employment. Second, growth in the construction sector appears to have slowed down after several years of high growth and job creation. Likewise, the service sector does not seem to be very labour intensive any more. Third, the weight of the manufacturing sector in total GDP is still rather low; and hence even a high degree of employment intensity in the sector is unable to offset the low labour absorption in other sectors. Moreover, employment growth exceeding output growth is indicative of falling labour productivity -- which is not desirable from the point of view of competitiveness and future growth of the sector. It thus seems that the job-creating capacity of the economy would depend on a variety of factors including higher output growth, especially in manufacturing and construction, and higher growth of those segments of the service sector that combine growth potential with ability to create productive employment.
Most jobs created are in the informal economy where the quality of employment is low: Most jobs in Bangladesh are in the so-called informal sector (see Table 1). What is more disconcerting is the persistence of such high proportion of jobs in that sector despite sustained economic growth attained over more than two decades. Such jobs are characterised by poor quality in terms of low productivity and low wages, poor environment in which work is carried out, and the absence of any forms of social protection, e.g., protection against old age through pension or provident fund, and protection against ill health or unemployment.
Also important to note is that a large proportion of employment within the formal segment of the economy may actually bear the characteristics of the informal sector.  Employment in the readymade garment industry is an example of such informal jobs within what may be regarded as the formal sector. A very small proportion of workers in formal sector jobs are covered by social protection of the type mentioned above or even severance benefits. Likewise, the proportion of workers who can form trade unions and bargain collectively with their employers is also very low, although the government is a signatory to the ILO Conventions on freedom of association and collective bargaining.  In sum, economic growth in Bangladesh does not appear to have enabled many workers to move out of the informal sector/economy to formal employment in a true sense.
Real wages may have been declining in recent years: Wage is a key labour market outcome and has important implications for inclusive development. Increases in  real wages and earnings can play an important role not only in reducing poverty, but also in reducing inequality in the distribution of income. But a rise in real wages may not necessarily help poverty reduction, especially if it is associated with a decline in the quantity of employment (for example, the number of days for which employment is available in a year for an agricultural labourer). The latter may actually neutralise the positive effect of the rise in real wages and prevent total earnings from increasing.
Likewise, a rise in real wages may not help improve income distribution if labour productivity increases at a faster rate than real wages. The gains from productivity increase may be unevenly shared by the factors of production, and the share of labour in value added may even decline. That, in turn, may have an adverse effect on personal income distribution.
If one looks at data on trends in real wages in Bangladesh, a somewhat mixed picture emerges. First, data on real wages of different categories of workers that are available from government sources (Figure 1) show that although Bangladesh witnessed an acceleration in economic growth since the mid-1990s, real wages of workers started to rise significantly only after 2007. In fact, real wages stagnated during 2003-2007. Second, real wages started to rise from 2008. It may be recalled that during that year there was a major food crisis throughout the world, the impact of which was felt in Bangladesh in terms of sharp increases in the prices of major food grains. There were increases in wages in response to such price increases -- a trend that lasted for a few years. But things started to change from 2011-12, as can be seen from Figure 2.
Government sources do not provide data on real wages after 2008-09. What is available are data on changes in nominal wages and consumer price index. Such data for agriculture and industry for the period of 2011-12 to 2014-15 are presented in Figure 2. It can be seen that in all these years, the rise in consumer price index (CPI) for rural areas exceeded the rise in nominal wages in agriculture. Likewise, the rise in urban CPI exceeded that of nominal wages in industry. These data, i.e., rise in nominal wages falling short of the rise in consumer prices, indicate that real wages in both agriculture and industry declined. This is a conclusion that emerges from available official data, and runs counter to the prevailing notion that real wages in Bangladesh have been rising. In reality, real wages did rise for some years since 2008; but the trend did not continue, and most likely got reversed in recent years.
Even when real wages were rising, inequality in the distribution of income increased. It is not difficult to explain this phenomenon. Calculations made by the present author (using data from the Survey of Manufacturing Industries of various years) show that the rise in real wages fell short of the increase in labour productivity. In the manufacturing sector, for example, growth of employment cost per worker (a proxy for wages) during the entire period of 2001-02 to 2012 fell short of the growth of value added per worker (proxy for labour productivity). The share of employment cost in total value added stagnated around 25 per cent during 2000 to 2005 and then increased to 36 per cent in 2012.
Work of any type is no guarantee against poverty: It goes without saying that poorly-paid wage employment and self-employment with low earnings do not help one get out of the clutches of poverty. But the question is how many face such situation. Given the availability and poor quality of data, it is not easy to answer this question with confidence. However, a few figures may be considered for the purposes of indication. The quarterly labour force survey for July-September 2015 shows that the monthly income of those in "elementary occupations" (not clear what this refers to, but can be assumed to be unskilled day/casual labourer) was Tk 8,263. Rough calculations indicate that the poverty line income for a household at that time was about Tk. 10,600. This implies that unless such a household had at least 1.3 workers, it would face a below poverty existence. And in 2015, they accounted for nearly 20 per cent of the total number of employees.
Unfortunately, data on income for the self-employed are not available. One needs to remember, however, that in 2015, over 45 per cent of the employed population was in that category, and this proportion has remained stubbornly high (hovering around 50 per cent during the past decade or so). Moreover, in the absence of regular paid employment, the official employment strategy seems to count more on such employment. While there is nothing intrinsically wrong with self-employment (especially of a type that would qualify as a good quality employment), many of those in self-employment in Bangladesh end up there as a means of the last resort. And many must be in activities yielding rather low incomes. Those working in rudimentary occupations like vending and lower level workers in informal trade, transport, and construction are examples of such precarious jobs. And a large proportion of them are most likely in the category of "working poor".
The outcome of participation in the labour market is not reflective of real inclusive development: The conclusion seems inescapable that despite an acceleration in economic growth, growth of productive and decent jobs has been slow. Move of workers from jobs characterised by low productivity and low quality towards better jobs has been slower than expected. People do find jobs; but they are either in the informal sector or in poor quality jobs in the formal sector. So, if one talks simply about inclusion in the process of economic growth, the answer probably would be in the affirmative. But the outcome of their participation is not reflective of real inclusive development, especially if the type of work and real wages are taken as indicators.
Dr Rizwanul Islam is an economist and former Special Adviser, Employment Sector, International Labour Office, Geneva. [email protected]