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Wages in the RMG industry

  • Published at 07:16 pm September 25th, 2013
Wages in the RMG industry

My friend, a ready-made garment industry owner sounded annoyed: “Madam prime minister is visiting New York with a 150 member entourage. From where is the money coming?’’ Further asking: “And it is not just any money, it is hard currency in US dollars. Who earns this? Our exporters and wage earners?”

He seemed furious to see the BGMEA president himself joining the prime minister on her New York trip, which he thought of as nothing but a pleasure trip just before the expiry of her term in the government.

 BGMEA has faced criticism for proposing only a 20% minimum wage increase for new  garment workers, three years after the last wage board.  He questioned why the prime minister and her cabinet members did not intervene in time to avoid the protests, fire, and vandalism at production units. 

Bangladesh’s wage board for the RMG industry fixed Tk930 as the minimum wage in 1994, raising this to Tk1,662 in 2006 and Tk3,000 in 2010.

Recent reports show workers’ associations and leaders want this to rise up to Tk8,114 (equivalent to $106). The owners meanwhile, are considering a 20% hike in the minimum wage so it goes up to Tk3,600, though there was a corridor discussion that they were thinking of a number around Tk4,500.

Knowing our government servants, politicians and other stakeholders, the easy way out would have been to resolve this around the mid-point. On the other hand, if one considered the cost of living of a 3-4 member garment workers’ family, reliable surveys point to a figure that is a little over Tk5,000, and if we consider the national annual per capita income of $1,044(just under Tk90,000), a monthly figure of  Tk6,650 would be an appropriate figure.

 Optimum pricing in the marketing or management world has always been a challenge. While low pricing may affect the productivity and overall image or acceptability of the product, above-market wages or non-sustainable pricing may seriously impact the core competitiveness of the industry or product segment as a whole.

While our workers in the RMG industry do deserve a respectable wage, preliminary studies suggest that the present condition of the industries may not be supportive of a minimum wage hike to more than Tk5,200 or $65 per month.

With less than 2,700 units, out of around 5,500 woven and knitting factories, doing direct contracts, wage and price increase may have a devastating impact on the factories doing sub-contracts for less well known apparel brands or retailers.

Obviously, Tazreen Fashion and most importantly Rana Plaza episodes have given a wake up call to all stakeholders in the apparel sector, and things can’t continue the way they were going. Global retailers, apparel buyers, unions and international development organisations are now taking much needed action to improve safety. This is a very good sign and should have happened much earlier to avoid the tragic incidents in Bangladesh’s RMG factories.

However, minimum wage was not the key problem for Tazreen or Rana Plaza victims and  survivors. Rather, it was all about non-compliance of building safety, workers safety, and workplace safety; more importantly, it was failure by garment owners in complying with minimum governance standards.

Without doubt, we need to review the minimum wage in view of the price hikes and cost of living increases, but more importantly, we need to make sure that buildings will not fall down and injure or kill workers because of poor construction and that workers will not be burnt alive because of poor fire safety and negligence by owners and supervisors who, in the Rana Plaza case, forced workers to work despite an identified safety issue.

Newspaper reports suggest around 2,000 factories may not pass the safety audit. We need to fix these units urgently. The factory inspectors need to make sure minimum standards are followed in our manufacturing plants. The fire brigade needs more fire-fighting equipment, manufacturing clusters need more integrated development, and the workers need to be encouraged to improve productivity and discipline at work places.

Productivity has always been a major problem in our manufacturing sector. The minimum wage in China is more than $200. But a Chinese worker’s productivity is much higher. On average, Bangladeshi workers require more time and almost the same money to produce a similar quantity of RMG products when compared to a Chinese worker, so there is only a slight cost advantage even though their minimum monthly compensation is $40.

Reports on monthly wage rates show figures in the apparel industries of $113 in India, $118 in Pakistan, $120 in Vietnam and $204 in China, but I have not come across any reports clarifying whether these are the minimum or average wage.

Whilst Bangladesh minimum RMG wage is $40, studies show the average earning of a Bangladesh garment industry worker is Tk5,200 or $67 equivalent. However, with an aim of making best use of the workers participation and contribution with productivity improvement in recent years, Bangladesh has a cushion to go up further, at least against the new entrants.

Where Bangladesh should position itself in the wage curve, is a tough question to answer and should be reviewed in accordance with the costs associated with fixing other pertinent issues like building safety, workers safety, power and energy investments, compliance of factory standards, productivity development, financing, replacement, and relocation costs in this industry segment.

Our apparel sector has grown a lot in a short time and has much future potential.  From almost $23bn now, it is likely to become a $50bn industry by 2021.

No matter what the naysayers may say, the industry segment warrants much more attention, and cohesive actions from all the stakeholders – be it media, citizenry, producers, workers, buyers, development partners, and most importantly, the government.  We need pro-active actions instead of episodic reactions.