We’d all like poor people to be richer. The important question is how do we make them richer? Do we follow the tried and tested method- if difficult and slow one – of working hard so that the country a a whole becomes richer, more value is being added, and incomes and living standards naturally rise? Or do we go for the damn fool insistence upon much higher wages right now. Because, you know, equality?
Sadly, an organisation called Clean Clothes has decided to follow that second path. Driven by apparently not knowing anything at all about economies nor how wages are set within them. For they’re arguing for a tripling of the minimum wage in those Bangladeshi garment factories, a tripling right now. To a level where someone straight in off the rice paddy will be earning about what a Bangladeshi private sector school teacher will be earning. A high school teacher, one preparing students for the local equivalent of a levels or high school graduation.
Think on what that sort of wage structure is going to do to labour allocation then. It’ll be like Cuba, where doctors get a month what a cab driver gets in an afternoon of dragging tourists around. Great for the supply of cab drivers, not so good for anyone desiring medical care – or medical care not delivered in the back of a cab that is.
But yes, this is what they’re arguing for:
The global and local rights groups have again pressed for fixing Tk 16,000 as the minimum monthly wage for the country’s readymade garment (RMG) sector workers.
This is up from the current 5,300. Which is already about three times the minimum wage in the economy in general. The bit that’s being missed here is that Bangladesh is still a poor country. GDP per capita is about $1,500 a year. Or, that is, less than what it is suggested this minimum wage should be (around and about $1.30 to 100 Taka). This is not a sensible nor sustainable level for a minimum wage.
Meanwhile, expressing solidarity with the demand of the Bangladeshi rights groups, the Clean Clothes Campaign (CCC), a global alliance of the RMG worker rights groups, urged the Board on Friday to propose the minimum monthly wage for garment workers to Tk 16,000.
“The workers in Bangladesh are paid some of the lowest wages in the global garment industry. The current minimum wage of Tk 5,300 (the equivalent of about US$ 63) has not been revised since 2013, and it is far below any credible living wage estimate.”
So, how have they reached this number, these Clean Clothes chappies?
Ahead of the long overdue meeting of the national Minimum Wage Board, set to take place on Sunday, 8 July, Clean Clothes Campaign expresses solidarity with workers in Bangladesh and full support for their demands. We urge the Minimum Wage Board to increase the minimum wage to 16,000 taka without delay, and to adopt other measures requested by workers and their representatives.
For they’re certainly arguing for it, aren’t they? The answer is:
We believe that all garment workers should be paid a wage they can live on, because having a job should mean being able to support yourself and your family. Calculating a living wage is a vital first step in making a living wage a reality. Clean Clothes Campaign is a member of the Asia Floor Wage Alliance who have calculated a living wage for the region where so many rely on the garment industry to be able to live a decent life. The Asia Floor Wage Alliance has made a clear visual explanation of how a living wage is calculated.
That answer is over here:
The 2017 Asia Floor Wage figure is PPP$ 1181
The Asia Floor Wage Alliance base their calculations on the following assumptions:
A worker needs to be able to support themselves and two other “consumption units” (1 Consumption unit = 1 adult or 2 children)
An adult requires 3,000 calories a day to be able to carry out their work.
In Asia food costs account for half a workers monthly outgoings.
The Asia Floor Wage is calculated in PPP$ – Purchasing Power Parity $, which are an imaginary World Bank currency built on the consumption of goods and services by people, allowing standard of living between countries to be compared regardless of the national currency.
That’s a monthly, not an annual, wage. And it’s far above the total production per capita in those countries. It’s simply not possible for the minimum wage to be above GDP per capita. There’s not enough being produced to pay it.
What they’ve actually done is decide upon a standard of living they think it would be nice for people to have – and it would be – and then insist that wages must be this much. Without any regard at all to reality. Which is that some parts of the world – too many, to be sure – are simply too poor for people to be able to live in this manner.
At which point Paul Krugman:
But matters are not that simple, and the moral lines are not that clear. In fact, let me make a counter-accusation: The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers.
After all, global poverty is not something recently invented for the benefit of multinational corporations. Let’s turn the clock back to the Third World as it was only two decades ago (and still is, in many countries). In those days, although the rapid economic growth of a handful of small Asian nations had started to attract attention, developing countries like Indonesia or Bangladesh were still mainly what they had always been: exporters of raw materials, importers of manufactures. Inefficient manufacturing sectors served their domestic markets, sheltered behind import quotas, but generated few jobs. Meanwhile, population pressure pushed desperate peasants into cultivating ever more marginal land or seeking a livelihood in any way possible–such as homesteading on a mountain of garbage.
Sweatshops are better. That 5,300 Tk is better than the living gained as a landless labourer, or a rickshaw driver’s wife. Which is why 4 million have flooded out of the paddy fields into those factories. Indoor work, no heavy lifting, a higher standard of living, what’s not to like?
And more Paul Krugman. What happens if we decide to massively raise wages in just the one portion of the economy?
Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model — workers can earn more by moving into the industries in which you have a comparative advantage — simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them. Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn’t happen, it is a sign that something has gone wrong. In other words, my criticism of Michael Lind would baffle many non-economists.
Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.
It is not true that because wages are low in Bangladeshi sweatshops then those workers are being oppressed. It is because Bangladesh as a whole is a very poor place that those workers gain better wages in the sweatshops. And, you know, this sort of industrial development is what made our forefathers, thus us, rich. It’s also what has made every other place that has become rich, rich.
Finally, and most importantly, it is not obvious to non-economists that wages are endogenous. Someone like Goldsmith looks at Vietnam and asks, “what would happen if people who work for such low wages manage to achieve Western productivity?” The economist’s answer is, “if they achieve Western productivity, they will be paid Western wages” — as has in fact happened in Japan. But to the non-economist this conclusion is neither natural nor plausible. (And he is likely to offer those Bangladeshi factories as a counterexample, missing the distinction between factory-level and national-level productivity).
As Krugman says, the Clean Clothes people, the Asian Wage Campaign, they’re missing exactly this point. When Bangladeshi productivity across the economy is the same as that in the UK then so will wages. To pull out one sector of the economy to gain those higher wages will delay this process as well.
The basic demand is simply ludicrous. But they’re making it. And how much do you have to hate poor people to do this?