Revision of Minimum Wages for RMG Workers
Decent living through revised wages: “Fair price” first
The discussion on the revision of minimum wages in Bangladesh's apparels sector over the last eight months has ended with a partial announcement of minimum wages by the Minimum Wage Board (MWB) on September 13, 2018. A total of Tk 8,000, of which Tk 4,100 is basic wage, has been announced as the lowest pay for workers in the RMG sector.
Different parties involved in the value chain at the local level such as workers, employers and government have given their reactions to the proposed wage. Those involved in the value chain outside of Bangladesh such as buyers/brands/retailers, consumers and governments of sourcing countries are yet to share their reaction regarding the revision of minimum wage in a major sourcing country—Bangladesh. We expect immediate responses from the parties at the retailers' end of the value chain—how they will contribute in implementing the revised minimum wage. This article puts forward a number of suggestions in this regard—on how buyers/brands/retailers and consumers can contribute to ensuring its implementation.
It is a fact that workers' minimum wages have been revised three times between 2006 and 2013; as a result, nominal wage has increased by 218 percent. This will rise further after adjustment at the end of this year. The question is, despite such rise in wages, why haven't workers' living conditions changed much over time? The CPD-RMG Workers' Survey 2018 revealed that RMG workers were living in very poor conditions. For example, despite the rise in wages, 17 percent of workers sleep without a bed at night and 16 percent do not have ceiling fans in their homes. Eighty-six percent of workers and their families have to share toilets. Forty-five percent could not save from the earnings of their households. A large section of workers needs to borrow costly informal credit in order to meet monthly dues. All these reflect that their incomes along with the income of their family members are not sufficient to meet minimum household needs.
The 2018 survey identified the changing needs of workers and their families. It found a major change in the cost structure between 2013 and 2018 where non-food costs have gotten bigger and have taken over an overwhelming share of total costs. This changed the ratio of food and non-food costs from 51:49 in 2013 to 36:64 in 2018. Among the non-food costs, families need to pay exorbitant amounts for house rent, spend for childcare, their education and medicare, as well as repay loans. Taking these into consideration, CPD proposed a number of changes in the structure of workers' minimum wage. It proposed the inclusion of a special allowance titled "childcare and education allowance" and a service benefit (three percent of basic wage) for long-term savings to be deposited in a "Central Provident Fund" and proposed revisioning the existing "travel allowance" into "travel and communication" allowance. In order to maintain a balance between minimum wage and median wage, CPD proposed incremental rise of different allowances in different grades based on workers' skill and experience.
According to the survey, the monthly expense of a family of 4.5 members is about Tk 22,435 which is met by the earnings of an average 2.1 working members of their families. Following the Anker (2008) method for calculating minimum wage and considering the limited capacity of entrepreneurs because of their low profit and low-priced products as well as possible future risks, CPD proposed a wage of Tk 10,028 for entry-level workers. CPD's proposal was not for negotiation and bargaining; rather the proposed amount was thought to be the minimum requirement for workers.
Historically, the debate on the revision of minimum wages in the RMG sector circled around three key issues: i) workers' requirement; ii) suppliers' capacity; and iii) buyers'/brands' willingness to pay. Unfortunately, the revision of the minimum wage has been implicitly determined by one issue, i.e. buyers'/brands' willingness to pay. The buyers/brands put forward a number of issues concerning the accommodation of the revised minimum wage. These include: i) revised minimum wage may increase the cost of production which may make Bangladeshi products less competitive; ii) workers' wage should be set in accordance with their level of productivity, and productivity of Bangladeshi workers is low compared to others; and iii) consumers are not interested to pay wage-adjusted higher prices. Hence, there is a lack of interest among major players in the value chain to take shared responsibility to implement the revised minimum wages.
During 2013, major brands/buyers announced their commitment to comply with revised minimum wages. A number of major global brands have taken initiatives to ensure living wages for RMG workers in the supplying countries. Besides, a number of brands set up alliances to ensure living wages for workers. It is expected that brands/buyers will announce their commitment to implement the revised wages. Further collaboration is needed among brands/buyers/retailers of major markets to implement minimum wage laws of the supplying countries. Similarly, consumer groups should make consumers aware of their responsibilities to ensure payment of minimum wages to workers. The joint effort of consumers groups and brands/retailers needs to be further strengthened.
Since consumers are the ultimate source for paying the price of products, they are supposed to be ready to pay the extra retail price in order to meet extra costs incurred through higher wages. According to a study by Oxfam, a 10 cent extra on a USD 10 t-shirt could meet the need of living wages of RMG workers. Are the consumers not ready to pay that amount? We don't believe that. The need to pay an extra 10 cent is not transparently placed to the consumers. There should be a proper mechanism in the value chain that reflects the payment made by consumers for decent wages—collected by retailers/brands which have pre-paid that amount to suppliers for the wage payment to workers. A proper transparent accounting mechanism needs to be established in the value chain which will show each retailer/brand/buyer in a market paying the workers.
In order to ensure proper payment of workers' revised wages, a transparent payment mechanism could be established which could be monitored by the buyers/brands/retailers. In this case, the mode of payment to workers needs to be made through the banking channel. On the other hand, buyers' payment to suppliers could also be made transparent in order to ensure that their payment sufficiently covers the adjusted minimum wage of workers. For example, the master LC transferred to the suppliers should detail out the cost breakdown of all payments to suppliers including wage-related payments with additional payment after the adjustment of wages. In other words, such an accounting process could be developed without major changes in the usual business practices of key players in the market.
Finally, major apparel sourcing countries should play a facilitating role in ensuring fair price for decent living of workers. We have heard that the EU has initiated a discussion process about fair price of products. This is a positive development! Joint efforts could ensure an enforceable mechanism of fair prices for products so that workers are guaranteed wages for decent living.
Dr Khondaker Golam Moazzem is Research Director, Centre for Policy Dialogue (CPD).