The impact of minimum wages – a clarification

The draft gazette of the minimum wage for garment workers in Bangladesh was published on 11 November 2023.

Despite the fact that the gross wage of an unskilled worker at the entry-level has been increased by 4,500 taka, which is 56.25% more than that of the existing minimum wage, the one-sided narrative against the new wage is hurting our industry and economy.

Bangladesh Labor Act clearly spells out the wage determining factory, which are – standard of living, cost of living, production cost, workers’ productivity, price of produced goods, inflation, work hazard, the ability of the industry, and socio-economic perspective of the country. While the aggregate inflation since 2019 is recorded at around 35%, the minimum wage has been reviewed by 56.25%, way above inflation. But has the impact of this revised minimum wage been analyzed carefully and factored in to balance the other side?

Since there has been a wider debate about the sufficiency of the minimum wage, we feel compelled to issue this statement on the ultimate impact of the minimum wage and the actual take-home wage of a worker in the entry level, i.e. Grade 5 (Grade 7 as per minimum wage gazette of 2018).

Let us make it clear through an example. An unskilled worker named ‘ABC’ who enters into a factory in Grade-5 on 1 December 2023 and draws salary in January, will be entitled for 6700 taka as basic wage, 3350 taka as house rent, 750 taka as medical allowance, 450 taka as transport allowance and 1250 taka as food allowance; altogether 12,500 taka as gross monthly minimum wage.

On top of it, the worker ABC works in extended hour (overtime which is allowed up to maximum 4 hours per day) for draws 64.42 taka per hour of overtime work. This is calculated by dividing the basic wage 6700 taka by 208 hours of normal work in a month and then multiplied by 2. So if ABC works for 52 hours per month draws 3350 taka end of the month as overtime benefit, 5025 taka if worked for 78 hours, and 6700 taka if worked for a maximum of 104 hours in a month.

Plus, the worker ABC draws 2 festival bonuses per year, each equivalent to a basic wage of 6700 taka. So in the first year of ABC’s service, an amount of 13,400 taka is drawn in the year, which comes to around 1116 taka per month.

Plus, an allowance of 500 taka is given on average as an attendance bonus per month. This amount varies from factory to factory (300-1000 taka).

Plus, the workers are allowed to encash 50% of their annual earned leave legally, though factories usually pay the full amount of the actual earned leave. Workers are now entitled to 1 day of leave for every 18 days worked, which was 1 day for every 22 days earlier, and the earned leaves can be carried forward for up to 3 years. As per this calculation, ABC is entitled for 16 days of earned leave which is given at the rate of one day’s gross salary, i.e. 12500 divided by 30 days = 417 taka per day. So the total amount of 16 days of earned leave

comes to around 6667 taka in the year, of which ABC can legally draw 50%, i.e. 3333 taka. This is around 278 taka per month.

Therefore, the actual net amount ABC is taking home after a month is 17,744 taka if worked 2 hours overtime per day, or 19,419 taka if worked 3 hours overtime per day, or 21,094 taka if worked 4 hours overtime per day throughout the month.

The following table may be helpful to have a clearer picture of these equations of the minimum wages of 2018 and 2023 –

Now, a few points need to be considered while criticizing –

1. Bangladesh’s garment industry has emerged based on the strength of our competitive workforce. We don’t have any other competitive advantage whatsoever, neither cotton (required to produce yarn and fabric), nor any other core raw materials including petro-chemicals (required to produce synthetic, polyester and MMF yarn and fabric, button, hanger, polybags, etc.) and paper pulp (required to produce price tag, hand tag, carton, backboard, neck-board, etc.), dyes, chemicals, and machineries required by this industry. If the wage increase is not done pragmatically, this will question our global competitiveness.
2. There are 44 industrial sectors in our economy having official minimum wages. Considering the requirement of skills, education and experience, the work hazard of respective industries, a comparative analysis of different sectors need to be done, and an evaluation of garment workers compared to others to be realized. The garment workers are unfoundedly better of than any other sectors.
3. The non-wage benefits given by the employers to the workers are never factored in. There are numbers of non-wage benefits given by factories including food and groceries at subsidized price, transport facilities, schools for children, day care center, and many more. Factories spend for these benefits toward worker to make their lives easier and comfortable, but these facts are never recognized as we see the criticisms.
4. The average age of ABC is around 23-24 years (as per the survey report by ACD, 2020). The minimum wage 12,500 taka is applicable for this unskilled worker, and for the workers in the upper grade the wage amount is negotiated and far higher than the amount mentioned in the gazette. But the narratives around wage mostly generalize 12,500 taka for all, which is wrong. In fact, 17,744-21,094 taka take home for a worker of 23-24 years should be enough considering their household profile.
5. Factories significantly vary within the industry, we have larger ones having ability to pay higher and better, vis-à-vis the smaller and medium ones who are more challenged. Whenever policies are made the context of the SMEs are considered, and this is done for all industries in all circumstances, given the fact that the larger ones are and will continue to pay higher wages and benefits to their workers at all times compared to the SMEs. The fixation of minimum wages has a bearing on SME sustenance.

The wider debate around wage tends to question the sufficiency of the wages, but the rational and empathy toward the industry remains absent. We must remember that the importance of the jobs created by this industry cannot be over-emphasized, and there is no alternative sector that can absorb such a huge employment. Therefore, the industry deserves more appreciation and attention, as much as we do care of our workers, so that we don’t make the equation it one-sided and imbalanced.

Faruque Hassan President, BGMEA