Formalising minimum wage across sectors can address the prevailing worker exploitation

Monthly grocery bills are onthly grocery bills are leaving the working-class people pauperised; there are long lines in front of TCB trucks - such is the price of inflation. The price of daily necessities has been steadily rising and some would argue have already soared beyond the reach of the ordinary citizens of the country. As if to rub salt in the wound, recent reports also found that the nominal wage growth was the lowest last year since FY 2015-16. 

But this should come as no surprise as the real wage rate (wage adjusted for inflation) has been steadily declining over the past few years. To some, such findings may seem paradoxical as the unprecedented rise in per capita income as well as growth in GDP in recent years should have been accompanied by a growth in the real wage rate. But there seems to be a disconnect between intended outcomes and the reality on the ground. 

A skyrocketing rate of inflation accompanied by stagnant nominal wage growth and declining real wage is a deadly combination that could tear apart the lives of ordinary citizens or at least make them go through hell simply to earn a livelihood. 

To get to the bottom of this confusion and potentially find a meaningful solution that addresses the underlying predicaments, The Business Standard spoke to Dr Sayema Haque Bidisha, Professor, Department of Economics, University of Dhaka. She is also the Research Director at South Asian Network for Economic Modelling (SANEM). 

Recent reports suggest that the income growth of wage earners in Bangladesh fell to a six-year low last year. The recent inflation has only made the situation worse. How seriously would this affect wage-earners of the country?

The official measurement of inflation based on the Consumer Price Index does reflect the recent price hike reducing the purchasing power of ordinary citizens. Unfortunately, the ground reality might be much worse as an average estimate of inflation (CPI) may underestimate inflation by a considerable margin, especially when cross-referenced with different demographics, income levels as well as consumption patterns. 

For instance, low-income households spend a higher share of their income on food consumption and are more significantly affected by high inflation rates. According to HIES 2016 (Household Income Expenditure Survey 2016), the average Bangladeshi household spends 47.7 percent of their total expenditure on food; the ratio rises to above 60 percent for low-income households.

Moreover, the current inflation rate uses 2005-06 as the base year despite data from HIES 2016 being available. Over the past decade, consumption patterns have changed significantly and these changes are not currently being reflected in the inflation rate. 

Then we have the wage index which includes a certain set of wage earners from a particular set of sectors. By definition, the wage index would leave out workers who have lost their jobs during the pandemic and are not currently working. 

Dr Sayema Haque Bidisha. Illustration: TBS

Moreover, many other groups are excluded from the index because it is often difficult to collect data on their wages. And much like the CPI, the dataset for the wage index is also outdated as it most likely uses the Labour Force Survey data from 2010 despite the availability of the data for 2015-16. So, the wage index, at best, represents a partial reality of the labour market and the conditions of the wage earners. 

Despite the per capita income steadily rising over the years, the real wage has declined over the years. Is this a sign of worker exploitation? What are the implications for income inequality?

The reality is much worse. BBS does not account for the super-rich in its calculation of per capita income. Then we have millions of dollars in non-performing loans, laundered money and dodged tax revenue that remain unaccounted for in the calculation of per capita income. The problem with an average like per capita GDP is that it fails to reflect the condition of different poverty pockets in the country. 

More importantly, there is significant evidence of worker exploitation. The International Labour Organisation requires several criteria like minimum wage, maximum hours, workplace safety, etc., to be ensured under the 'Decent Work' framework. But we cannot even ensure a minimum wage across the board, let alone meet the other criteria. 

How should the government address these problems? What policies should be taken to protect the workers from exploitation?

To address any problem, we first need to understand it to a reasonable degree and to get an accurate picture, both the CPI and the wage index must be updated. The base year for both indices must be updated. For the wage index, more groups such as the self-employed should be included in the computation process. 

On the policy level, formalising minimum wage, at least across the major economic sectors, can address the prevailing worker exploitation. Even though real wages in the RMG sector remain relatively low, at least they have a minimum wage. 

In many other sectors, wage earners are often exposed to an excessive level of exploitation. A wage commission should be given the responsibility to go beyond RMG and include more sectors in the minimum wage structure. 

Therefore, the government should formalise and expand a minimum wage structure beyond the RMG industry. Yes, it will be a long and arduous process, but it will be worth it in the long run.

Other initiatives such as unemployment benefits may seem far-fetched for a country like Bangladesh. But the government, nevertheless, should introduce and encourage such policies, at least in a limited capacity. To do so, the government will have to collaborate with local representatives and business leaders, like the shop owners' committee. 

They can provide each worker with some form of identity card which would serve as a certificate of their employment. On one hand, this information could be used to prepare a comprehensive dataset. On the other hand, it would be easier to identify those in need of unemployment benefits.

Can formalising collective bargaining or unionisation in industries reduce the power disparity among the owners and the workers?

In the case of collective bargaining, there is very little room to move around for the two parties involved. The workers have a certain reservation wage they expect to receive and the employers have a ceiling that they will not cross. So, collective bargaining can only do so much in improving the conditions of the wage earners. 

Moreover, collective bargaining will not be able to address the underlying systemic issues as it delegates the task of a wage commission to workers with imperfect foresight. Instead, it should be the government that fixes a minimum wage across different industries and executes policies that make the employers adhere to the minimum wage structure set by the government.