RMG sector: Minimum wage conundrum

Asjadul Kibria | Published: July 25, 2018 21:54:35 | Updated: August 08, 2018 21:22:55


The good news is that the representatives of both the employers and workers of the ready-made garment (RMG) sector have submitted their proposals for minimum monthly wage of RMG workers to the Minimum Wage Board for the garments industry. The bad news is that the proposals have given rise to more controversies than solving any problem.

The existing minimum monthly wage of RMG workers is Tk 5,300. The employers have proposed to increase the amount to Tk 6,360 while the official representative of workers has asked to increase it to Tk 12,020. 

The employers' proposal to increase the minimum wage by only Tk 1,060 or 20 per cent after five years has already drawn widespread criticism and sparked protest. Trade unions and labour right groups are not also happy with the proposal submitted by the official representative of workers on the board. They have long been demanding a living wage for workers which, they calculate at Tk 16,000 as minimum monthly wage of a worker. [A living wage should cover the basic needs of a worker and their family.]

The concept of minimum wage is to protect workers against unduly low pay but it doesn't ensure the coverage of cost of living. According to the International Labour Organisation (ILO), it is the 'minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract.'

Mr Siddiqur Rahman, the president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), has submitted the proposal on behalf of the factory owners. He has made it clear that not the workers' need but the 'cost of doing business' and 'competitiveness' of the industry are their 'core considerations' on proposing the new minimum wage structure.

The factory owners claim that they have proposed 20 per cent hike in minimum wage adjusting inflation. But this is not factually correct. The Consumer Price Index (CPI) at the end of FY14 was 195.08 which increased to 245.22 at the end of FY18, according to the Bangladesh Bureau of Statistics (BBS). It means, if someone purchased something at Tk 100 in FY14, he had to pay Tk 125.70 for purchasing the same item in FY18. Thus, inflation rate is 25.70 per cent during the past five years. So, the proposed 20 per cent hike is actually a proposal to cut down the real income of the workers by 5.70 per cent.

The owners also don't want to continue the exiting seven-grade wage structure and so proposed five-grade wage structure. Apparently, they are in favour of abolishing the grade-1 and grade-2. Under these two grades, currently most skilled and senior workers have been compensated. By not giving any proposal for these two grades, the BGMEA leadership probably gives a wrong message that skill, efficiency and productive of the workers is not their priority.

On average, owners actually proposed hike in wages for five grades by only 18.70 per cent which is far below the five-year inflation rate. If the basic wages are taken into consideration, the rate of hike is only 18.41 per cent after five years. It means annual average rate of proposed hike is 3.70 per cent against the annual average inflation of 6.18 per cent during the past five years.

The owners also don't want any legal binding on annual increment or festival bonus. That means a worker  will cease to enjoy the legal right to increment and bonus which will fall within the sphere of discretionary power of factory owners. 

 The criteria the employers' have used in proposing the new wage structure - 'cost of doing business' and 'competitiveness' of the industry - are highly controversial. These are primarily the domains of the owners and the government. The workers cannot be unduly punished for any weakness in these fields.

  Anyway, the apparel industry of Bangladesh has been doing well compared to its global competitors. In the last five years, annual average growth of apparel export stood at 7.41 per cent indicates the vibrancy of the sector. Again, the export registered 11.64 per cent annual average growth in the last 10 years ended on FY18. During the period, Bangladesh has emerged as the third largest global exporters of clothing after China and the European Union (EU).

The revealed comparative advantage (RCA) of the clothing industry of Bangladesh is also very high compared to its major global competitors like China, Vietnam and India. RCA of Bangladesh in the apparel industry was around 24 points in 2000 which increased to 29 in 2015. At the same time RCA of India and China declined to 2.38 and 2.65 respectively from 4.47 and 4.60 in 2000. Vietnam's RCA in the clothing industry increased from 4.00 in 2000 to 4.68 in 2015. The RCA measures the relative market share computed as the ratio of a country's share in world exports of a particular item to that of the country's overall share in world exports of all items. 

Despite the improving conditions of the apparel industry of the country relative to its regional and global competitors, the wage of the workers in the sector is one of the lowest in the world. The minimum wage for RMG workers is $155 in China, $ 140 in Cambodia, $116 in India, $107 in Vietnam, $104 in Indonesia, and $69 in Bangladesh.  Thus Bangladesh is paying the lowest amount of wage to its workers despite being highly competitive in the sector globally.

The number of garment factories, according to BGMEA statistics, increased until FY13 and reached 5,876. The annual average growth of factory expansion was 4.08 per cent during FY01 and FY13.  High profitability, mostly at the cost of low wages, drew a large number of entrepreneurs and businessmen into the sector.

After the Rana Plaza disaster in April 2013 which claimed lives of more than 1,100 garment workers, the sector faced a shock of restructuring. Global brands, the buyers of the Bangladeshi clothing, forced the factory owners to ensure workplace safety of the workers. Factories, vulnerable in nature, had to shut down and total number of factories dropped to 4222 in FY14. The number modestly increased to 4560 in FY18 as a few new factories have come into business. This figure excludes about 2,000 factories of the members of the Bangladesh Knit Manufacturers and Exporters Association (BKMEA) and the small factories run on sub-contracting.  So, the actual number of apparel factories is more than  6,000.

 Factory conditions have improved thanks to continuous pressure from Accord and Alliance - the two platforms of the western buyers' working on the safety of the RMG workers. They will, however, going to windup their activities by the end of this year.

Garment factory owners can count many powerful politicians and lawmakers among themselves. This sector gets special treatment. For instance, there is a big tax relief for the RMG owners. The factories are now subject to 15.0 per cent corporate tax against 35.0 per cent for most of the sectors. Moreover, the 1.0 per cent tax at source is considered as the final settlement and provides a huge tax benefit to the factory owners. 

Interestingly, the RMG factory owners actually initiated the move for the revision of minimum wage structure last year. This was highly welcomed by all. Now, the wage structure they have suggested has raised many an eyebrow.

 asjadulk@gmail.com

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