Regarding the five points discussed in my previous article -- paying the minimum wage; paying the arrears in compensation; stopping blacklisting; withdrawal of cases brought against workers advocating higher wages; and improper termination -- the owners have nothing to say. They have violated the laws and agreements.
What the government should have done
The Ministry of Labour should have demanded immediate correction and levied heavy fines for violations. Instead the plan is to talk about these issues and perhaps negotiate forbearance for the owners.
Is there anything new here? The Ministry of Labour should take strong immediate action on these five points. By the end of October 2024 everyone will know what has been accomplished.
Of what is left points 14 and 8 both involve continuing the Wage Board approach to setting wages. Points 15, 16, and 17 are difficult issues involving the law.
On the Labour Law this song and dance has been going on for years; the US government, the EU, and the ILO are led around like sheep while the Ministry of Labour promises, breaks the promises, promises again, etc. This needs to be stopped. Or the benefits available to the industry from the rich nations will vanish.
If the workers are prevented from negotiating there will be strikes and the interim government will either crash the industry over industrial action, thereby wrecking the economy; or it will have its law enforcement authorities shoot down the workers.
How to negotiate wages
The way forward is to hold elections for unions in every factory; the unions of the largest 80 factories will be joined by unions of the smaller factories for negotiation purposes. The small factory joins the group on the owner’s side.
These groups, each led by a large factory and its union, would conduct independent negotiations over wages and benefits.
Roughly we expect 40 factories (and their 40 unions) to be in each of the 80 groups. Government would have no role here other than to ensure the union elections take place and the negotiation take place under the appropriate rules.
The negotiation takes place between a small group of owner representatives and a small group of union representatives for each of the 80 groups.
The purpose of the negotiation is to have a contract that will be signed by all participating unions and factories. There will be a separate contract for each group. If there is no agreed contract 30 days after January 2026 then the discussions continue.
A wage-setting procedure that results in lower real wages will certainly encourage more labour disputes
The unions have the right to strike for a maximum of up to 120 days. If the strike time is exhausted without agreement the Ministry of Labour will appoint an arbitrator acceptable to both sides. The arbitration result will be binding. Contracts will be for a minimum of three years and a maximum of six. The first negotiations will be scheduled for January 2026.
This is a rough sketch of how to negotiate wages in an industry with so many independent factories. An industry-wide negotiation seems awkward. Negotiations for each factory (over 3,000) seems too complicated.
During the strike period the workers are not paid nor is the factory allowed to open. The elements of the negotiation are that strikes are allowed, but with a time limit. At first the workers must accept the negotiated contract. But after one round of negotiations the final contracts must be adopted by the workers through vote.
Wage Board
For immediate purposes, the government can announce adjustments to the wage structure. Here is a proposal. This corresponds to points 14 and 18 in the Joint Declaration.
The wages were set in December 2023. Due to the high inflation, the wages will be adjusted on July 1 and January 1. So the next adjustment is January 1, 2025 covering one year; this will be about 10% increase.
The adjustment made will use the urban CPI for the six months period. The first adjustment is for one year. We assume a productivity increase of 2% over the year and so the wage should increase 12%. As inflation declines, the next six months' increment will be smaller. The productivity increase can be estimated from actual data for the industry.
Furthermore, this wage increase should be for the entire wage and not only for the basic wage. The prices of housing and medical care increase also.
This corrected version of the Wage Board framework protects the worker from inflation and provides a small increase for presumed higher productivity gained from experience.
The actual Wage Board rules give the following results:
- Wage end of 2023: Tk12,500/month.
- Wage end of 2024: Tk12,835/month or a 2.7% increase.
- Wage end of 2024: In end 2023 prices Tk11,668/ month or a 7% decline.
- Wage end of 2024 using above proposals Tk14,000/month or a 12% increase.
The proposal made here does not include any change in the Wage Board’s 2023 award other than the changes related to the increment. That 2023 award was quite generous. To provide a fair estimate, one has to examine the cost structure of the typical garment factory.
The increase in revenues due to the deprecation of the Taka is about 40%. The labour costs are 30-40%. Other costs have increased about 55-60% (raw materials, energy, maintenance, interest costs.) This allows an increase in wages of 5-15%. The proposed increase of 12% is of the right order of magnitude.
The labour problems are not going away unless the interim government takes actions to solve the problems or returns to brutal policing
One cannot calculate a fair wage, where one guesses at the standard of living that the worker must obtain. Two factors are important: The average worker receives a higher wage from having more experience and also usually receives two hours of overtime per day. Part of the problem is overtime has fallen due to low orders.
The second consideration is the family condition of the worker. For the EPZs a study showed most workers live with their family or are married which throws a different light on the fair wage. In the US it is very difficult to live a reasonable life without two wage earners; so it is in Bangladesh.
A wage setting procedure that results in lower real wages will certainly encourage more labour disputes.
Of course, the Joint Declaration calls for adjustments in the Wage Board rules. The agreement was signed without any instructions as to what level to reach. Surely the workers should not find their real wage declining.
There are other benefits the workers should receive: Medical care is one. We do not discuss this in this article but there are many ways to accomplish this. One is to run the jhoot business through a central company with the proceeds going to help cover the medical costs of the workers.
This could be a central symbol of the new government ridding the society of a business that has been completely corrupt.
The Joint Declaration did little to actually resolve the issues and only promised more talks. The worker unrest is likely to continue and probably to grow.
The workers’ claims are five:
- Give what has been agreed upon: This is the content of points 2, 4, 5, 7, and 12. There is no reason for any discussion.
- Give a reasonable structure of wages. Do not reduce the real wage. This means a revision of the level of the minimum wage (now Taka 12,500) and the increments (now 5% of the basic wage every 12 months).
- Let unions form to negotiate agreements and to enforce what has been agreed.
- Ensure that the Ministry of Labour is even-handed and not biased towards the owners.
- Retrain the industrial police, remove their firearms, and do not allow the brutal beating and shooting of workers.
We reiterate the current situation. The labour problems are not going away unless the interim government takes actions to solve the problems or returns to brutal policing. Unless attended to promptly, the labour disruptions will continue and likely reduce production and exports. Economic growth will slow down and the economy will stagnate. No one wants that.
Forrest Cookson is an economist who has served as the first president of AmCham and has been a consultant for the Bangladesh Bureau of Statistics.
