Wages in Bangladesh's RMG sector are not enough for them to be a living wage. So we're told at least and thus we're about to get the demand that everyone's wages must double -- and if they don't then we're siding with the oppressive capitalists or something. This is also total nonsense for a number of different reasons.
The claim is in this newspaper: “[M]edian earnings... Tk9,984 (Tk9,669 for women and Tk10,928 for men), resulting in a wage gap between 51% and 60% for women workers and 45% to 54% for male workers.” Cue fury that the capitalists are short-changing the workers. Except that's just not how wages are set in any economy. For several different reasons.
The first is that this living wage is set by the Anker Method -- which says that the wages of one worker should be enough to raise a family. That's just something that's not true of any of the advanced countries -- single wages aren't enough to produce median household income and haven't been for decades.
That whole economic liberation of women means that the modal (ie, most common) household is a two earner one. Therefore, by definition, that average lifestyle that everything is being compared to depends upon two, not one, set of wages.
The second is that the living wage is based upon an assumption that would have been entirely valid to Adam Smith. As he pointed out, the lack of a linen shirt does not make you poor. But if you live in a society where not being able to afford a linen shirt is taken to be a sign of poverty, then if you can't afford one in that society you are poor.
Fine, we're defining poverty relative to the general standards of that society. But this obviously ties into the point above -- if the average household has two wage earners then how can we demand that a single wage covers average household costs?
The third is that this method aims very high indeed. It's not, in fact, an estimation of poverty within Bangladeshi society. It's what a group of outsiders think should be the living standard. What, within the costs and prices of the Bangladesh economy, makes up a reasonable lifestyle -- according to the views of those foreigners.
Which is all very nice but not really something we should have to take note of. It's even possible to think of this as another outburst of that colonialist impulse. A bunch of white Europeans shouting about how browner and poorer places just aren't doing things the way the white Europeans insist they should be.
But the biggest error here is that it shows absolutely no knowledge whatsoever of how wages are set in an economy.
This is one of the areas where Marx got it quite right (although as with those areas where Marx did, he picked it up from elsewhere, in this case David Ricardo). Wages are, as with rents and so on, determined by the level of productivity. As Paul Krugman has been pointing out for decades, it's the general productivity across the economy that matters in determining wages.
This does indeed work the other way around. The reason wages are generally low in Bangladesh is because the Bangladesh economy generally has low labour productivity.
Another way to make the same point is that wages in the RMG factories are determined by the wages on offer to those same workers outside the RMG factories. If someone is in Bangladesh and doesn't work in clothing, then what wages are on offer? That's what will determine the clothing wages -- what's the next best offer for that same labour?
This is why a barber in England and one in Dhaka will have wildly different incomes even though they're doing the same work, with the same technology. Cutting men's hair using scissors and comb does indeed pay a vastly different amount depending upon the wages available in the other jobs surrounding the chair the hair is being cut upon.
The complaint about low wages in RMG therefore becomes a complaint about low labour productivity, thus low wages, across the Bangladesh economy. That also means that it's not something that is solvable by the RMG factories nor the capitalists that own them. Wage levels are determined by the economy as a whole, thus it's the economy as a whole that needs to be cured to raise them.
There's nothing wrong with the base idea of a living wage. Sure, we can all have a target for how it would be lovely if everyone could live in a certain manner. But we do need to make sure that the calculation is reasonable -- say compare household labour to household income, not one wage to cover all the people -- and also be realistic about the level of development of the economy under discussion.
But most importantly, we've got to grasp what it is that determines wages. That's the whole economy that does that, not what any one employer decides upon. So, the solution to low wages is development of the whole economy, not shouting at any one set of employers.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.
