Real wages in fishery, construction falling despite faster GDP growth

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Last fiscal year, Bangladesh’s GDP grew at a record 8.15 percent, so it is natural to assume the real income of all would see some degree of increase with such a high level of economic expansion. And yet, fishermen and construction workers saw their real wages fall.

These two groups of labourers have continued to see their real wages fall owing to inflation rate exceeding the rise in their nominal wages for nearly one and a half years, according to data from the Bangladesh Bureau of Statistics (BBS).

Inflation, a measure of changes in prices of a basket of necessary goods and services, was at 5.48 percent in fiscal 2018-19 — well above the growth rate of nominal wages for fishing (5.22 percent) and construction (5.19 percent) workers that year.

The two sectors accounted for one-tenth of the GDP in fiscal 2018-19

In other words, the purchasing capacity of the workers in the two sectors, who tend to be low- and unskilled and poor, shrank in the last fiscal year despite the historically high GDP growth.

And their situation did not improve this fiscal year either, showed the BBS’s consumer price index (CPI) and wage rate index (WRI).

For instance, in November inflation was 6.05 percent, which was 1.19 percentage points higher than the nominal wage growth rate in the same month in the fishery sector and 1.18 percentage points higher than that in the construction sector.

The trend in wage growth coincides with the declining pace of poverty reduction and widening inequality between the affluent and the poor, raising questions and concerns about the quality of Bangladesh’s much-lauded GDP growth. The best performers in fiscal 2018-19 were manufacturing sector, followed by farming and service sectors. The real wages of workers in the sectors had been higher than the rates of inflation over the last one and a half years.

Real wage growth in agriculture was very small (0.54 percentage points) and it would be important to see if that can be sustained as a long-term trend in future, said Rizwanul Islam, a former special adviser of employment sector at the International Labour Office, Geneva, in an email.

He cited his earlier work on longer-term trend in real wages that showed a rise from 2008-09 to 2010-11 and a fall from 2010-11 to 2015-16.

“The decline took place both in agriculture and manufacturing. Hence, the reversal of the trend for these two sectors comes as good news. However, rather than being complacent, one should note a few more points,” he added.

The BBS has been producing the WRI since 1974 on a regular basis using 1969-70 as the base year. The WRI measures the movement of low-paid skilled and unskilled labour over time in three broad sectors of the economy: agriculture, industry and service. Later, the WRI was rebased to 2010-11.

The BBS estimates the average monthly wage rate of low-paid and unskilled labourers in 44 occupations: 11 from agriculture, 22 from industry and 11 from service.

The agency collects wage data from 64 districts by defining wage as money received either in cash or in kind in a day. Salary paid and high contract-based earnings were excluded from the WRI.

“The sustainability of the rise in wages in manufacturing is also an issue. The nominal wage in the sector tends to rise when there is a revision in minimum wages,” Islam said, adding that the rise in nominal wage tends to fall behind the rise in inflation after one or two years.

The WRI showed that the nominal wage of workers in the manufacturing sector increased 8.38 percent in November this year, 2.33 percentage points higher than inflation rate in the same month.

The trend in real wages is extremely important not only from the point of view of the level of living standards of workers but also from the point of view of income distribution, he said.

“It is well-known that the rate of poverty reduction has declined in recent years and income distribution has worsened. The failure of real wages to rise on a sustained basis and in line with the rise in productivity must have been an important reason for such unwelcome developments.”

Hence, it is extremely important to ensure a sustained rise in real wages and in line with productivity, Islam added.

For the service sector, the situation neither improved nor worsened, said Zahid Hussain, former lead economist of the World Bank’s Dhaka office.

“From this, it appears that the benefits of high GDP growth are not trickling down to all. Wage is a key medium to distribute fruits of economic growth to labour.”

What is evident is that because of higher real wages, people working in the production sector are coming out of poverty more than others.

The share of GDP growth that went to labourers dropped last fiscal year from a year earlier.

Of the 7.28 percent growth in economy in fiscal 2016-17, 1.65 percent went to the hands of workers and 5.6 percent to the pockets of the non-labour group, he said.

And less than one-fifth of the officially estimated 8.15 percent GDP growth in fiscal 2018-19 went to the hands of labourers, Hussain said.

“GDP growth has accelerated but who are getting the benefits out of it? Three-fourths of the growth are going to the pockets of a few although 85 percent of the population depend on labourer income.”

Hussain suggested inflation control, particularly food prices, as the poor and low-income group spend 70-75 percent of their incomes on food.

“Food inflation has an adverse effect on them,” he said. Efforts to curb price spirals through monetary management prove to be insufficient.

“Supply-side factors matter a lot here. We have a problem in the supply chain,” Hussain said, citing transport disruption, bad crop, Indian policy and movement of oil and global commodity prices.

Ensuring fair competition, free flow of information, checking artificial price increase and manipulation are the jobs of the government, Hussain added. 

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