What should be the minimum wage for RMG workers?

Abul Basher What should be the minimum wage for the ready-made garment (RMG) workers? The answer depends on what kind of society we intend to be. The level of minimum wage can be translated into how much we care for the toiling masses. In setting the minimum wage, the bare minimum that a society must ensure is the continuance of the current level of living standard of the working class. Otherwise, we will be singled out as a heartless society. The new wage must be adequate at least to meet the rising cost of living. Increase of cost of living depends on where one resides, in urban or rural area, and what one consumes. In case of the RMG workers, the most relevant proxy measure for increase in cost of living is the urban food inflation. If we don't want to be identified as a heartless society in the eyes of our next generation, whatever minimum wage we set should be adequate at least to compensate for the food inflation that occurred during FY10-13. Anything less would mean absolute decline in the living standard of the RMG workers who are already struggling hard for their subsistence. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) - the association of RMG manufacturers - has already announced the amount by which they would like to increase minimum wage for their workers. They intend to accept an increase in minimum wage by Tk. 600, increasing it to Tk. 3600 from its current level of Tk. 3000. Not to mention that not only the RMG workers but also many human rights activists are not happy at all with what BGMEA offered. Most likely the dialogue between the employers and employees of the RMG sector would continue to reach to an agreement. The question is: how will we be characterised by our next generation if the proposal of the BGMEA is accepted today? More directly, will the proposed increase be adequate to meet the increase of cost of living that took place during FY10-13? According to the Bangladesh Bureau of Statistics (BBS), the urban food inflation in FY11 was 9.76 per cent (http://www.sid. gov.bd/wp-content/uploads/ 2013/01/Consumer-Price-Index-CPI-December-201295-96.pdf). The minimum wage in 2010 was set at Tk. 3000 for the RMG workers. Simple arithmetic implies that their minimum wage in 2011 should have been Tk. 3293 to prevent any fall in their living standard. According to the same source, the urban food inflation in FY12 was 12.20 per cent. It means the minimum wage of the RMG workers in 2012 should have been Tk. 3695. What the BGMEA has offered for their workers in 2013, is not even adequate to meet the living cost of 2012. If this offer is accepted, we all will be at fault of forcing the RMG workers to cut their consumption in absolute term although the size of our economy is growing. What should be the minimum wage for the RMG workers so that we all can remain free of guilt of not forcing them to consume less in absolute term? The food inflation in FY13 was 5.22 per cent (http://www.banglanews24.com/English/detailsnews.php?nssl=61eed5440ef0e04ae611e15c439320f5&nttl=0907201373262). It means the minimum wage in 2013 should be Tk. 3887 so that RMG workers can maintain the same living standard they used to enjoy in 2010. Unfortunately, what the BGMEA has offered, falls short of this bare minimum by Tk.287, and therefore, should not be acceptable. Even if minimum wage is set at Tk. 3887 this will not be adequate to compensate for the loss of living standard of the RMG workers in the previous years. As mentioned before, the minimum wage in 2011 should have been Tk. 3293, whereas the actual wage was only Tk. 3000. The workers received Tk. 293 less each month than what they should have received to keep their living standard intact, which is equivalent of receiving Tk. 3516 less for the whole year. Money has a time value. Tk. 100 in year 2011 is much more valuable than Tk. 100 in 2013. One simple way followed in economics to derive the time value of money is through estimating what could be earned by keeping that amount of money in the bank. Assuming a 10 per cent interest rate, the time value of Tk. 3516 that the RMG workers should have received in 2011 is about Tk. 4254 in 2013. Similarly, the workers received Tk. 695 less each month than what they should have received in 2012, amounting to Tk. 8340 during the whole year. The time value of this amount now is about Tk. 9174. All this arithmetic means that if our society decides to ensure the bare minimum to compensate for the rising cost of living and consequent loss of living standard of the RMG workers, the minimum wage now should be set Tk. 3887 plus an onetime allowance of Tk. 13428 for those who have been working since 2011. If the society decides not to compensate for the time value of money, the onetime allowance will be Tk. 11856. One of the policy goals currently pursued by Bangladesh is to promote 'inclusive growth' - not just mere growth. This goal cannot be achieved by providing the working class only with the bare minimum required to sustain their current level of living standard. To achieve the set goal of accomplishing 'inclusive growth', benefits of growth need to be distributed equally across all strata of society. It means, the minimum wage should be increased by an amount which will be equal to (i) the bare minimum amount required to keep their living standard intact plus (ii) amount required to ensure equal share of the RMG workers in growth of real GDP (gross domestic product). From arithmetical point of view, if Bangladesh really wants to promote inclusive growth, the minimum wage of the RMG workers needs to be at least Tk. 4613 plus a onetime allowance to compensate for paying less than what the workers deserved during the previous years. The only way to avoid the onetime allowance is to implement the policy of annual increase of wage of the RMG workers. Abul Basher, PhD is Researcher at Bangladesh Institute of Development Studies (BIDS), former economist, World Bank, and former faculty, Willamette University, USA. [email protected]