AFTER several meetings, the Minimum Wage Board (MWB) formed by the government has come up with much awaited figures on the minimum wage for the workers of the readymade garments (RMG) sector. Needless to say that Tk 1662.50 as the minimum wage for the seventh grade workers is nowhere near the demand of the workers who had been firm on their position for an amount of Tk 3000. Though a section of workers' leaders agreed to the recommendation of the MWB, another section has termed the proposal as unrealistic. How these two opinions will coincide is a matter of concern as tranquility is essential for smooth operation of this important sector.

What and why

In a wage-based economy a worker provides his labour or service to the employer in exchange of a wage. This wage should be enough to support an acceptable living of his own and family. The concept of "necessary" has been used to understand the issue of a living wage. In 1789, Adam Smith in his famous book, An Inquiry into the Nature and Causes of the Wealth of Nations described the concept in the following way: "By necessaries, I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for credible people, even of the lowest order, to be without."

At present, minimum wages are determined in most countries of the world notwithstanding opposing opinions from different sections of the society. A minimum wage is the lowest level of payment for a specific job established by the law. It is determined and applied in order to provide social and economic protection to the low wage workers that are the most vulnerable section. The economic objective of minimum wage is to motivate workers to contribute to the economy and

share the benefits of economic growth.

In Bangladesh there is no national minimum wage though a Minimum Wage Board was formed in 1961 through the Minimum Wage Ordinance. In January 1994, the government determined Tk 930 as the minimum wage for the RMG sector. Since then, the minimum wage has not been revised.

How much should it be?

The International Labour Organisation (ILO) Convention on the Minimum Wage requires that minimum wage should be fixed by taking into account the needs of the workers and their families, the general level of wages in the country, the cost of living, social security benefits, and the relative standard of living of other social groups.

In the context of Bangladesh, the re-fixation of minimum wage has to be done taking into consideration issues such as inflation, per capita GDP growth, change of exchange rate during 1994-2006, poverty level, productivity, actual expenditure of workers, etc.

Thus, if the Consumer Price Index (CPI) and per capita GDP growth are adjusted for the period 1994-2006, Tk 930 then amounts to Tk 2669.82 today.

If workers are to be kept above the absolute poverty level by providing minimum one US dollar per day, as internationally set, minimum wage comes to about Tk 2,000 per month.

Alternatively, if only the cost of food is considered, Tk 1061 is required per person for buying food equivalent to 2122 kilocalorie, minimum requirement for one person.

One can guess how much the total cost would be if food costs of other members of a household, housing, transportation, medical, education, and other costs are taken into consideration. Whether the MWB has taken these factors into consideration or not is not clear and has not been reflected in the recommendations.

Unemployment It has seen argued by some that fixing of minimum wage may cause unemployment. However, the

relationship between these two

variables is not so simple, and

depends on several other parameters including the prevailing market rate and alternate sources of employment in the economy. The examination of some of the parameters reveals the following facts.

First, the minimum wage for the

workers of the state-owned enterprises is Tk 2,450 which is way above the MWB suggested amount for the RMG workers. Second, there is still demand for skilled labour in the RMG sector in Bangladesh. This is reflected through frequent mobility of workers from one factory to the other. The only way to hire skilled labour is to employ the unskilled ones first and train them. Third, over the past decade or so the rural

economy has also gained momentum and is capable of absorbing a large number of people. Non-farm activities and self-employment through micro-credit have created opportunities for both men and women. Fourth, the very idea of fixing minimum wage is to prevent the exploitation of labour, particularly if the supply of labour is abundant. Fifth, multi-country empirical research undertaken by the ILO

found that the level of minimum wage has an insignificant effect on the level of employment while minimum wage may bring results in poverty alleviation by improving the living conditions of workers and their families.

Will RMG sector survive?

It is argued that over the years the profit margin has gone down. On the other hand, cost of production has

increased due to rise in various costs including shipment, airfreight for late delivery, installation of captive power or generators due to power shortage, lighterage, insurance, marketing abroad, bank interest, R&D, and above all, bribes to various quarters. However, the only advantage is cheap labour whose cost has not gone up for long 12 years. It is ironic that entrepreneurs can absorb all such costs but not the labour cost, and are afraid of losing competitiveness or even to survive due to rise in minimum wage.

There are several factories that compete in the high-end markets. At the same time, there are also many small and sub-contracting factories which find it difficult to pay even Tk 930. The fixing of minimum wage cannot be based on these extreme cases. Keeping the weaker factories alive at the cost of workers' wages is not logical. It is also not wise to remain competitive in the world market by keeping wages low. Economically, in the long run it will not pay back since taking care of the labour causes is also a productivity and compliance issue.

It has been evident that the RMG sector of Bangladesh has faced the challenge of Multi-Fibre Arrangement (MFA) phase out successfully. During July 2005 and June 2006 the increase in export in terms of dollar value was 13.5 percent for woven and 35.4 percent for knit. Similarly, in terms of quantity, exports rose by 17.8 percent for woven and 45.9 percent for knit. This also indicates that the average profit of the sector has not gone down drastically as there has been increase in orders.

Role of trade unions

Sadly, trade unions of the RMG sector have very weak bargaining power and often depend on the trade unions at the national level that are not necessarily represented by RMG workers. The absence of organised trade union has been obvious during the whole period of the crisis in the RMG sector this year. On one hand, there was

nobody who really had the authority to stop the workers when things went out of hand and turned into anarchism. On the other hand, the lack of capacity to be engaged in meaningful discussion backed by economic data and analysis was painfully observed at the negotiating table. Therefore, organised, powerful, and able trade unions, both at the workplace and national level is essential for a healthy relationship between workers and employers, and for the overall development of the sector.

Not the only issue

The tripartite agreement put forward the 10 point demand of RMG workers which include issuance of appointment letter and identity card, maternity leave with full salary, payment of wages and overtime by the first week of each month, one day weekly leave, medical leave, right for trade unions, etc. In order to develop a modern, dynamic, and competitive RMG sector, the implementation of a complete wage structure and the creation of a productive working environment are the prerequisites.

The emerging challenge for the sector is to face the situation after 2008 when the EU and the US will withdraw their safeguard quota from Chinese textiles, and to move to the next trajectory. In view of the Chinese factor, the preparation of other competing countries such as Cambodia, Sri Lanka, and Vietnam, and the falling prices of cutting and making (CM), our RMG sector has to prepare itself by restructuring through technological upgradation, increased productivity, and product development.

The writer is an economist.