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Nonsense about the minimum and living wages In Bangladesh

  • Published at 06:43 pm January 1st, 2017
  • Last updated at 04:00 pm January 2nd, 2017
Nonsense about the minimum and living wages In Bangladesh

There was something from, I think Mill, quoted by Margaret Thatcher about how something was nonsense, nonsense upon stilts. This would seem to be an apt starting point for describing an insistence about wages in Bangladesh. The place is a poor country, we know that. There are also a lot of garment factories there, we also know that. And as is normal in a poor country, the people working in those factories do not receive high incomes.

This is normal because that’s what it being a poor place means -- wages are low, incomes are low. As Paul Krugman has pointed out, that’s because productivity is low -- human labour there adds little value and thus, it is lowly paid. And the solution is that that labour should be adding more value. And when the average value added of that labour is the same as it is in the US, then everyone will be getting paid US wages. And yes, wages will rise to US levels, not US falling to those of Bangladesh.

All of which makes this little demand rather difficult:

Tens of thousands of workers walked out of factories this month in the manufacturing hub of Ashulia which make clothes for top western brands such as Gap, Zara, and H&M, prompting concerns over supply during the holiday season.

The protests were sparked by the sacking of 121 workers, but soon evolved into a demand for the trebling of workers’ pay from the current monthly minimum of 5,300 taka (£54).

The workers are of course entirely at liberty to withdraw their labour over pay rates. That freedom of association is as important a freedom as the right to free speech. However, this:

It remains one of the lowest wages in the world, less than one-fifth of what some campaigners estimate to be the country’s living wage.

Those campaigners are over here:

Across Asia, governments set minimum wage levels which companies are obliged to comply with. However, in every garment producing country, the Asia Floor Wage Alliance works in the minimum wage levels fall far below a wage a person could live on. All figures are for a monthly salary.

Well, no, people are living on those wages so obviously it is possible to live upon those wages. What they actually mean is that wages should be high enough to afford the standard of living which the campaigners desire people should have. Which is where we come to our problem of course.

Please do note that I share the desire that incomes should be higher, that lifestyles should be better. This is why I so support this free market globalisation stuff, simply because those rising lifestyles are exactly what it has delivered to billions over the past few decades.

But it does have to be the rising value added that comes first, not the higher wages.

Living wage calculations must take into account some common factors, including the number of family members to be supported, the basic nutritional needs of a worker, and other basic needs including housing, healthcare, education, and some basic savings.

No, that’s not the way it does work. And that’s why the demand for a €260 a month living wage just isn’t going to go anywhere.

The average wage in Bangladesh is about $60 a month. That’s a little old so I’ve upgraded it a bit for growth. And £54 is, even at current exchange rates, rather more than $60. Not a lot but still more.

I’d love to see Bangladesh get richer so that that was the average lifestyle. I’d love to see the place as rich as the US and lifestyles to match. But given the current poverty of the country, it’s just not something that can be usefully demanded right now

However, the claim about the living wage is that in fact a Bangladeshi needs €260 a month to enjoy that minimal standard of living the campaigners think should be available. £54, €260, OK, around and about a factor of five.

However, here’s our problem. At market exchange rates Bangladesh’s GDP per capita is around $1,000 a year. At PPP exchange rates, around $3,000 a year (very rough numbers).

And yet, the insistence is that the minimum living wage should be three times, or dependent upon how we’re using price adjustments, equal to GDP per capita?

This simply is not possible; it’s as if we insisted that the minimum wage in the United States was $50,000 a year. There’s just not enough of the economy to go around to make that a possible amount to pay.

It’s a desirable goal, it most certainly is. I’d love to see Bangladesh get richer so that that was the average lifestyle. I’d love to see the place as rich as the US and lifestyles to match.

But given the current poverty of the country, it’s just not something that can be usefully demanded right now.

So, sadly, we’ve got to file this as something worse than that nonsense upon stilts -- perfect piffle on a pogo stick perhaps.

We cannot drive minimum wages up over GDP per capita, that’s just not one of the things the universe allows us to do. We’ve got to raise the GDP and the wages will naturally follow.

Tim Worstall is a Fellow at the Adam Smith Institute in London. This article first appeared on Forbes.com.

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