Independent University, Bangladesh – (IUB)

A Report on Critically Analyze Minimum Wage Decision and Consequences in

Bangladesh.

Course Name: Labor Economics and Compensation Theory (HRM 370)

Section: 01

#Submitted to:
Ms. Bushra Sanjana
Lecturer
Department of Human Resource Management
School of Business Administration, IUB

#Submitted by:

Name ID
Mehbub Hasan Siyam 1730472
MD Ashiqur Rahman 1631183
Shirshendu Dey 1710850
Riya Chakma 1730498

Date of Submission: 31th March, 2020

 Letter of Transmittal

Letter of Transmittal
To,
Ms. Bushra Sanjana
Lecturer,
Department of Human Resource Management,
School of Business Administration, IUB
Independent University, Bangladesh (IUB)
Bashundhara R/A, Dhaka-1229, Bangladesh
Date: 31th March 2020

Subject: Report on critically analyze minimum wage decision and consequences in Bangladesh.

Dear Miss,

We would like to report that as you have requested and gave us the permission to work on
critical analysis of minimum wage decision and consequences in Bangladesh. This report is an
important part of our course, and we have tried our best to work on it carefully and sincerely so
that we can create an informative report.

We thank you for all the support that made our analysis a success and managed in accordance
with our common hope.

Sincerely yours,
Mehbub Hasan Siyam (ID-1730472)
MD Ashiqur Rahman (ID-1631183)
Shirshendu Dey (ID-1710850)
Riya Chakma (ID-1730498)

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 Executive Summary

In this we used the knowledge we learnt from our course and the net to carefully analyze the
current minimum wage of Bangladesh and also see some of the consequences it has on the
livelihood of the labors and the economy. Firstly, we discussed the main concept of living wage
and minimum wage and how it is calculated. Afterwards, we talked about the recent increase of
minimum wages and also compared that with another country which has the same economic
condition as Bangladesh so further understand how we stand.

We also talked about the recent riots by the labors when the increase of minimum wage was not
what they had expected. We talked about how to solve the problem between the labors and
government over minimum wage and what could be its short and long term impacts. On the other
hand we have identify the pay model structure and this will the help the government and BGMA
for the compensation. Moreover wage is not only the important factor so BGMA and
government must come forward a convince employers to provide other benefits in order to
conflict riots in the future. Thus we have recommended some suggestions we believe these will
the RMG industry to grow bigger.

Well minimum wage is decided by the government and they make this decision based on various
stakeholders and the employees are major stakeholders and the decision is always decided based
on their benefits. Despite that, employees are not satisfied so now it’s time to change their
mindset and BGMA and Trade Unions should try to help the employees to absorb the knowledge
of the real world in RMG sector and its condition.

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 Table of Contents
Minimum Wage Calculation Process..............................................................................................5
Legislation Regarding Wage...........................................................................................................6
Wage Comparison with Other Industrialized Nation......................................................................7
Wage comparison with Vietnam RMG...........................................................................................7
Clean Clothes Campaign:................................................................................................................9
Accord International......................................................................................................................10
The Recent Riot in RMG Sector....................................................................................................11
Problem Analysis...........................................................................................................................13
There are few types of problem:....................................................................................................13
Reason for the Labor Unrest in RMG Sector in Bangladesh, 2019...............................................14
Problem Solutions..........................................................................................................................17
Sometimes Wage is not the only Solutions...................................................................................18
The Pay Model Structure...............................................................................................................19
Compensation Strategy..................................................................................................................20
Short Term Impact.........................................................................................................................22
Long Term Impact.........................................................................................................................23
Why is it considered That Increasing Minimum Wage Is a Short-Term Solution for a Long-Term
Problem?........................................................................................................................................24
Conclusion.....................................................................................................................................25
Recommendations..........................................................................................................................26
References......................................................................................................................................27
Appendix B (News Articles).........................................................................................................28

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 The Concept of Living Wage

A living wage can be defined as the wage that workers and their families need for a decent
standard of living in the region(s) where they live. Workers should be able to afford for
themselves and their dependents: a standard level of nutrition, housing, transportation, energy,
healthcare, childcare, education and savings within regulated working hours (e.g. without
overtime hours). Living wage calculated to ensure workers’ remuneration for a regular work
week is sufficient to cover a standard basket of goods for them and their dependents.

In 1906 Father John Ryan published a book entitled A Living Wage; It’s Ethical and Economic
Aspects in which he argued for a “living wage” that allowed “a decent livelihood for the adult
male laborer.” Ryan proposed that a living wage “would allow an income for not only food,
clothing and a five room dwelling but also education for four or five children, periodicals,
recreation, labor union dues, church contributions, and savings for sickness and old age.”
There is no specific standard for the living wage. It varies with country. For example In the
United Kingdom and New Zealand, advocates define a living wage to mean that a person
working 40 hours a week, with no additional income, should be able to afford the basics for a
modest but decent life, such as, food, shelter, utilities, transport, health care, and child care. The
income would have to allow the family to 'secure food, shelter, clothing, health care,
transportation and other necessities of living in modern society'. Advocates have further defined
a living wage as the wage equivalent to the poverty line for a family of four.

An important part of developing living wage is estimating a wage level that represents the
minimum acceptable living standards in a given area or region. The living wage is estimated by
first estimating the cost of a basic life style for a worker and his or her family. This involves
adding up the cost of food (for a low cost nutritious diet), housing (for basic healthy housing),
and other essential expenses for a family that includes education of children, decent health care,
transportation, recreation, clothing, household goods, communication, personal care, and a small
margin for emergencies and unforeseen events.

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 Minimum Wage Calculation Process

Employers calculate wages by multiplying an hourly rate times the number of hours worked. The
federal government sets a minimum wage, but states may require workers to be paid more.
Minimum wage is a wage set by law, industry wage is the prevailing wage in the region for a
type of work and living wage is a wage sufficient for workers and their families to subsist
comfortably. For our assignment we will be focusing on the RMG sector of Bangladesh.

In Bangladesh the minimum wage is TK 8000. The term minimum wage is not defined by the
Labor Act 2006 rather it sets a procedure for fixing industry wise minimum wage rates.
Minimum wage rates are declared by the Government on an industry basis following
recommendations by the Wages Board, a specialist tripartite board established under article 138
of the Labor Act 2006. In making its recommendation, the Wages Board takes into consideration
cost of living, standard of living, cost of production, productivity, price of products, business
capability, inflation rate, economic and social conditions of the country and of the locality
concerned and other relevant factors.

The Minimum Wages Board (MWB) is obliged to revise its recommendations if any of the
aforementioned criteria change (within one to three years). The minimum rates of wages for any
industry may be re-fixed after every five years as may be directed by the Government. Minimum
wage rates are set on an industry basis and are binding on all employers concerned.

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 Legislation Regarding Wage

The term minimum wage is not defined by the Labor Act 2006 rather it sets a procedure for
fixing industry wise minimum wage rates. Minimum wage rates are declared by the Government
on an industry basis following recommendations by the Board of wages. The Bangladesh Labor
Act 2006 (the “Act”) has recently been amended by the Government of Bangladesh. Overall, it is
notable that the rights of workers have been expanded, but the amendments do not focus solely
on workers' rights. In making its recommendation, the Wages Board takes into consideration cost
of living, standard of living, cost of production, productivity, price of products, business
capability, inflation rate, economic and social conditions of the country and of the locality
concerned and other relevant factors.[ CITATION MdS18 \l 1033 ]

On September 2018, the Bangladesh government moved to raise the monthly minimum wage for
garment workers - for the first time in five years - to TK 8,000 (USD 96), up from the previous
TK 5,300 (USD 63). Still many garment workers are dissatisfied with the increase, as workers’
rights organizations and trade unions had been calling for at least TK 16,000. Others were
unhappy about a discrepancy in the increase between junior and senior workers. While workers
claim the increase is not enough to cover increased living costs, factory owners say they cannot
afford to pay increased wages for which both the parties are not at rest. On January 2019,
thousands of garment workers staged protests for increased minimum wages. After one violent
clash, where police used rubber bullets, tear gas and water cannons to disperse the crowds, one
person was killed and 50 others injured.

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 Wage Comparison with Other Industrialized Nation

Average industrial wage is the mean hourly rate of pay for workforce members of a given
geographical area, such as a country or province, excluding farm employees. This measurement
serves as a reasonable proxy for the wage rate of the average worker in a given country, and is
used by labor organizations and employers as a benchmark to evaluate average wages paid to
workers in the labor force in that area.

Wage comparison with Vietnam RMG

Bangladesh remains the second largest apparel exporter in the world, after China, according to
the World Trade Organization (WTO) data. The data said that Bangladesh held on to its status in
the world in FY 2017-18, accounting for 6.5 percent share of the market. Vietnam exported $27
billion worth of garment products in 2017 with its 5.9 percent market share, the WTO data said.
In the RMG sector both Bangladesh and Vietnam are more or less the same. The current
minimum wage of Vietnam is around US $125-$180. According to the report's findings, 99% of
Vietnamese garment workers that were studied earn below Asia's living wage rate proposed by
the Asian Floor Wage and 74% of them earn below the global living wage proposed by the
Global Living Wage Coalition. Garment workers are not just subjected to low wages, they also
fall victim to management abuse, with 23% report getting yelled and shouted at daily. Garment
workers are also offered little choice and agency as many are kept in the dark about their rights,
job descriptions and unit prices for the products they made. About 90% of workers in the study
were not aware of their job grade, set working hours or annual leave provisions. Weak

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bargaining power of trade unions, burnout and potential loss of jobs prevent these garment
workers from speaking out for their rights. When it comes to legal protection for these
employees, Vietnam falls short. The lack of labor inspections and the limitation of the statutory
minimum wage contribute to the problem. Moreover, the report warns that Vietnam's recent
embrace of international labor policies and trade agreements, which means a shift towards a
market system, will create more vulnerability for workers and leave them even less room for
collective bargaining.

Clean Clothes Campaign:

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The Clean Clothes Campaign (CCC) is the garment industry's largest alliance of labor
unions and non-governmental organizations. Formed in the Netherlands in 1989, the CCC has
campaigns in 15 European countries: Austria, Belgium (North and South), Denmark, Finland,
France, Germany, Italy, Ireland, Netherlands, Norway, Poland, Spain, Sweden, Switzerland and
the United Kingdom. The national branches of the CCC are autonomous organizations of
consumer groups, trade unions, human and women's rights organizations, researchers and
activists. Representatives from each national campaign meet three times a year to coordinate
international activities.
CCC vision: All people working in the global garment and sportswear industries enjoy and
exercise their human rights at work and in the community and are able to defend and improve
these rights.
CCC mission: The Clean Clothes Campaign network works to structurally improve working
conditions and support the empowerment of manufacturing workers in the global garment and
sportswear industries.

Accord International

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The Accord is an independent, legally binding agreement between brands and trade unions to
work towards a safe and healthy garment and textile industry in Bangladesh. It covers factories
producing Ready-Made Garments (RMG) and at the option of signatory companies, home
textiles and fabric & knit accessories. The Accord on Fire and Building Safety in Bangladesh
helps ensure that no worker needs to fear fire, building collapses or other accidents that can be
prevented with reasonable health and safety measures. The Accord is a legally-binding
agreement between global brands & retailers and Industrial Global Union & UNI Global
Union and eight of their Bangladeshi affiliated unions to work towards a safe and healthy
garment and textile industry in Bangladesh.

This agreement was signed in the immediate aftermath to the Rana Plaza building collapse on 24
April 2013, which killed 1,133 workers and critically injured thousands more. Over 220
companies signed the five-year Accord, and by May 2018, the work of the Accord had
contributed to significantly safer workplaces for millions of Bangladeshi garment workers. To
maintain and expand the progress achieved under the 2013 Accord, over 190 brands and retailers
have signed the 2018 Transition Accord with the global unions, a renewed agreement which
entered into effect on 1 June 2018. They specialize in safety training, factory inspection and
resolving safety complaint.

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 The Recent Riot in RMG Sector

In recent times, Labor disruption in RMG sector of Bangladesh has been a matter of serious
concern. In late 1970s, The RMG industry of Bangladesh started its adequate journey. Presence
of the RMG sector in national economy is significant. RMG sector is known as the highest
foreign exchange medium in earning sector. Even in last year, Bangladesh’s 4,500 textile and
clothing factories shipped more than $30bn worth of apparel. But despite the role of garments
workers in transforming the impoverished nation into a great manufacturing pivot, they remain
some of the lowest paid in Bangladesh.

Before 2019, the minimum wage of RMG sector was tk.5300 which is insufficient for to run an
individual or a family. In Jul 2018, Bangladesh RMG industry braces for worker protests for
minimum wage. They even confirmed that, by the decision of the trade union, they asked for
nothing less than Taka 16,000 as monthly pay would be acceptable in line with the ILO
Convention, contemplating the current prices of commodities, inflation and standards of the
workers’ living.

Later in January 2019, they finally form a group together without the help of trade union and
decided to stand for their right and increase the minimum wage for their well living. Thousands
of garments worker clashed with police over their poor wages during the demonstration. Water
cannon and tear gas were fired to disperse huge crowds of striking factory workers in Savar, a
garment hub just outside the capital, Dhaka. Also one worker was killed when police fired rubber
bullets and tear gas at 5,000 protesting workers. But however the garment workers were sticking
into their decision. Reviewing the situation, Union leader Aminul Islam blamed factory owners
for resorting to violence to control striking workers. “But they are more united than ever,” he
told AFP. “It doesn’t seem like they will leave the streets, until their demands are met.”

Bangladesh is dependent on garments stitched by millions of low-paid tailors on factory floors

across the emerging south Asia economy of 165 million people. Roughly 80% of its export
earnings come from clothing sales abroad, with global retailers like H&M, Wal-Mart, Alde,
Primark and Tesco among the main buyers.

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The main reason for the Riot was for the entry-level workers was more than that of their senior
operators, even-though they have been working for more than seven to eight years. The new
wage has been effective from December 1. Major disparity in the salary hike was noticed in the
third and fourth grades as their salaries were not raised like that of entry-level workers. Sadly in
most of the grades, except the seventh, only Taka 500 was raised in the new salary structure,
whereas an entry-level worker's salary had increased by Taka 2,700 at one go.

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 Problem Analysis
Problem analysis therefore involves identifying the overriding problem. Problem analysis leads
the root cause of a problem when people, machinery, process and systems fail to perform up to
the mark Problem analysis is used to gather and analyze the accurate information required and
correct the actual cause of the problem. Problem Analysis is more like an investigation of the
causes of an incident issue or failure.

There are few types of problem:

 Root Cause: Root causes analysis is the method of problem. Large number of failures can be
tracked with tiny number of roots of the problem

 Cause and Effect: Causes and Effect analysis allows problem solvers to thinking overall
picture of a problem. Problem Analysis focuses of identifying the cause and effect even
though it is very difficult to detect.

 Fishbone Diagram: A fishbone diagram is a causes and effect diagram. A fishbone diagram
identify many possible causes for an effect or problem. A visual representation of the
problem with multiple roots and causes of problem It is considered to be the final output of
the problem and used to make recommendations to fix numerous aspects of a problem.

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 Reason for the Labor Unrest in RMG Sector in Bangladesh, 2019

RMG industries are playing a very important role in the economic development of Bangladesh.
But this industry is now in crisis due to repetitive labor unrest. The most common reasons for the
labor unrest, as alleged by workers, are non-payment or deferred payment of wages. Despite
their claims to the contrary, some garment owners neither give salaries, nor overtime allowances
to the workers on time. Small wonder a kind of mistrust between the employers and employees
exists in this sector. The core problem behind this unrest is the lack of intra –organizational
relationship.

Even though after dominating 83.5% of the export segment of the Bangladesh and becoming a
strong pillar of the country’s economy, there is a presence of unrest that leads to these on and off
protests, movements, chaotic events that puts a halt to the factory’s operation as well as the
country. It is severely alarming for the country’s economy and future because the country may
get stripped from possessing the competitive advantage by getting replaced by strong
competitors and new entrants.

The RMG sector of Bangladesh has experienced disputes and violent protest by the workers in
recent times. This study explores the reasons for recent unrest in the garment sector. Since
managers are mainly responsible for applying human resource practices, this paper has given
particular attention to their views on recent attitude changes of workers. Results show that
mutual understanding among workers and managers is absent in the RMG sector. This study also
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states that high-work load, poor behavior of line managers, low skills and low wage rates are the
notable reasons for high job turnover and social unrest. Poor relationship between workers and
supervisors is the main source of conflict. This study finds that there is growing demand for
work life balance among the workers of RMG sector.

Even after increasing the minimum wage by 6.7 from BDT 5300 to BDT 8000 the labors are
unhappy. Primarily because it does not live person up to their expectations and this settled
amount miserably fails to respond their cost of living as well as it does not contribute much to
still the workers to survive. Secondly there has been a rumored termination of 5000-7000
workers with assumptions made of these workers being involved in the protest.

Bangladesh successfully attains to hold a strong competitive advantage right after China for the
cheap source of labor. Even after almost increasing their salary twice as much these stakeholders
are asking more, BDT 16000. They are considering BDT 16000 to be fair for them as it
positively impacts all the grades of the labors in the RMG sector. There are approximately 7
grade of workers in this sector. The updated pay scale is favorable for 4 th, 5th, 6th and 7th grade
workers but not the other grade workers. Even though 1 st grade workers deserve the highest level
of importance for their skills, experience and job period in a factory. But their minimum wage is
getting reduced by BDT 409 but the most junior ones are being beneficial as they are to enjoy an
increment of BDT 196 as of their minimum wage.

This decision created a fear amidst the workers that they will be derailed from getting other
benefits such as overtime, festival bonus, maternity leave, Sick leave, paid break and etc. The
pay scale also visualizes that only a particular grade of workers was in consideration whilst
projecting the increment and the others were not into the account. However, these benefit
deprived labors’ tension and dissatisfaction emerged the protest.

Whatever might be the cause of labor unrest in the RMG sector, impact is, beyond doubt,
catastrophic. All the four parties- the workers, the owners, government and foreign buyers will
be affected. If labor unrest continues, the foreign buyers will cancel their orders and divert to
other exporters like, India, China or Cambodia. Hundreds of factories will be closed. Many

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owners may be bankrupt. Labors, losing jobs will lose their livelihood and many will involve in
criminal activities. This will create burden on the existing unemployment problem and increase
various types of crimes in the country. The government will be deprived of huge foreign
exchange and revenue income. The industrialization process of the country will be impeded. The
foreign buyers, who could buy quality garments at a low price and make huge profit in the US or
EU market will have to eye on another exporter country from where they have to count a high
price for the same garments. Hundreds of businesses, grown based on RMG industry suffer. The
whole economy of Bangladesh will be adversely affected.

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 Problem Solutions

 Increase of wage’s percentile.

 Units to be increased of each grade’s workers

 BGMEA can convince the government for monetary stimulus package to full fill higher
wages.

 Regular basis training in Training Institutes can ensure both better industrial management
environment and higher productivity. Higher productivity means high revenues, thus profits,
which in turn could ensure better wages.

 Restructure factory hierarchy organogram; provide incentive to deserving employees but

keeping salary indiscriminate level

 A common platform for owners and labors is needed, where both parties raise their problems,
and therefore find instant better solutions. The platform should be consisted not only with
owners’ and labors’ representatives, but also experts from research organization

 Readjust wages.

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 Sometimes Wage is not the only Solutions

Apart from providing wages, BGMEA or government can insist owners to provide Day Care
centers for worker's children where free education, health care etc. can be provided. Even though
some top rated garments are providing this service but however others can also provide it.
Moreover this will help employees especially female workers can rest assured and can work with
full flow. On the other hand factory environment must create competiveness among the
employees in the work place. Participation can increase efficiency and workers can enjoy.
Sometimes grade 1 and 2 employees can help motivate train grade 6/7 employees which will
help them in terms of communication, coordination etc. Sometimes owners or top management
people can have lunch with these workers. Even though most of the garments especially big
garments provides 2/3 times meal a day but BGMA or government must make sure each
garments provide lunch or on the behalf of government they should try to provide some meal to
works. These type of benefits can reduce conflicts.

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 The Pay Model Structure

Before making any decision regarding the minimum wage the RMG industry should identify the
pay model structure and identify their main objective is efficiency, fairness, compliance.
Efficiency can be stated in improving performance, increasing quality, delighting customers and
control labor costs. Fairness objective calls for fair treatment for all employees by recognizing
both employee contributions and employee needs. Compliance as a pay objective means
conforming to International Labor Organization (ILO) compensating laws and regulations. Now
in order to achieve these objectives the industry will be using four different polices. To
developed internal structure, the first policy, alignment is the best policy since they can use
techniques like work analysis, descriptions, evaluation/certificate. Internal alignment refers to
comparisons among jobs or skill level inside a single organization. The industry can compare
jobs and people's skill in terms of their relative contributions to the business objectives. This
policy is used in order to achieve fairness, efficiency and compliance. The second policy is
competitiveness and with the objective of efficiency, fairness and compliance, RMG industry
can use market definition, surveys and policy line to develop pay structure by following these
techniques. The third policy is contribution and in order to achieve fairness, efficiency and
compliance RMG industry can use seniority based, performance based, merit guidelines to
develop incentive programs by following these techniques. The fourth policy is management
and with the objective of efficiency, fairness and compliance RMG industry can use cost,
communication and change in order to develop evaluation by these techniques.

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 Compensation Strategy
The compensation strategy is extremely important as the right compensation strategy helps to
build the effective and competitive organization and the wrong setting of the compensation
strategy. The compensation strategy is derived from the HR Strategy and it defines the position
of the RMG industry on the job market, the level of the total cash, the main bonus principles in
the RMG industry and rules for the base salary setting. The compensation strategy helps the
RMG industry to manage the personnel expenses of each organization/garments and it sets clear
limits for the managers and employees. It provides the top management with the certainty, the
personnel expenses are under the control and the costs will not boom.
The compensation strategy gives the certainty to the HR employees and HR managers as they
can promise the stability in the compensation, the stability and the managed development of the
compensation components and they can explain the basic role of the individual compensation
components. The compensation strategy acts as the basic document driving the compensation
and benefits processes and defines clear priorities for the development or redesign of the
compensation components.

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The RMG industry should follow these key steps to formulate a compensation strategy.

 Assess Total Compensation Implications

 Map a total compensation strategy
 Implement Strategy
 Reassess

At step 1 they will need to assess the total compensation strategy. Which means understanding
the business and its market in which the organization operates and how the organization plans to
operate in the industry. Then understand the values that guide that guide an employer's behavior
and underlie its treatment of employees. Implement the social and political context in which
context refers to a wide range of factors including legal requirements, cultural difference,
changing workforce demographics. Employee needs are important since they are the ones due to
whom business makes money therefore it is an important challenge for the RMG industry to
satisfy individual needs and preference.

At step 2 they will need to fit the decisions according to the strategy by illustrating the objectives
and how total compensation is important in the overall HR strategy. Internal alignment defines
different pay in job level can support carrier growth. Competitiveness will give a knowledge of
compensation and the importance of work/life balance achieved via benefits and services is also
part of external competitiveness .Employee Contributions will give a compensation surplus to
individual employees and RMG industry can use different approach to performance based pay.
Management refers to ownership involves to the role of non HR managers in pay decision
making. Transparency refers to openness and communication about pay.

At step 3 RMG industry need to implement the strategy through the design and execution of the
compensation system.

At step 4 reassess and realign closes the loop. This step recognizes that the compensation
strategy must change to fit changing conditions.

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 Short Term Impact

While it is difficult to obtain funding for sustainable development plans, short term high-added
value projects that benefit current communities and can contribute to the economy are abundant
and finding a way to tap on these projects to meet longer term plans is key if viable sustainable
development strategies are to be achieved. Needs and demands of workers by increasing their
minimum wage is expected to pause the protest, this shall release the general daily hustlers get
rid of struggling, do not fear vandalism, lack of transport and etc. Moreover the situation will be
normal and the daily life shall be passing smoothly as it were. Protests not only harm the
subjected industry but it severely impacts adjacent industries as well. Secondly it provides the
industry to continue their operation smoothly and in a break free manner which contributes the
factories with chances of making more profit, the better the factory performs the better benefits
can be provided to the workers and we can observe a decline in the unemployment and crime
rate over time.
Impacts are favorable but at the same time it has drawback as well. Considering the worker’s
demands may compel the owners to heavily pay, because increasing the minimum wage will
result in a handsome payment from the owner’s side at a glance. Now that the owner’s may not
be able to afford the same amount of workers with previous pay scale, it will not be surprising to
expect a hefty amount of unofficial terminations overnight. Apart from the strong wave sweeping
away the factory’s money regarding the increased minimum age, the factories also has to bear a
severe loss on damages due to the protesting workers attacking the factory building, transports
and equipment. All these are undoubtedly very expensive but the collateral damage may not hold
anyone accountable and the insurance companies may slip away showing clauses that the
insurance compan9ies are not responsible for the damages.

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 Long Term Impact

The importance of the minimum wage has been discussed from the Perspective of the workers.
Now it is the time to look at the impact on other stakeholders. Most countries have some form of
minimum wage; it varies widely country to country. Policymakers often argue that an increase in
the minimum wage also increases the earnings of low-income workers and thus can be a tool of
poverty alleviation and equaling Income distribution. Some argue that a moderate rise in the
minimum wage can help lower earning group greatly without causing any job loss, even it
increases productivity in the Workplace, as it leads to an increase in work effort, lower turnover,
and more on-the-job Training. But some empirical evidence shows that a higher minimum wage
may end up in job losses. Economic theory suggests that whether a minimum wage leads to
higher employment or job losses depend on the balance between the minimum wage and
marginal productivity of labor (MPL). An increase in the minimum wage can benefit both Sides
if the existing wage is much lower than the MPL.A solid workforce will also help the company
to maintain their good bonding with the big shot customers that helps the companies with heavy
revenue generations and tax payments to the government and protecting the stable economy.

The Company owners will be cornered as per unit cost is increasing and the uninvited increase in
minimum wage will result an incurred loss for the factory owners. Companies may turn to
automation or outsourcing to control the increase in wage expenses. This could reduce the
number of jobs available in the marketplace for unskilled workers, again resulting in higher
unemployment. When worker pay goes up, employers can respond in a number of different
ways. They can cut hours, lay off workers, and raise prices.

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Why is it considered That Increasing Minimum Wage Is a Short-
Term Solution for a Long-Term Problem?

The supply of workers and businesses’ demand for workers somewhat ascertains the minimum
wage of labor. The law of supply suggests that as prices increase, the amount of people looking
for work will increase. The law of demand indicates that as the price of individual units of labor
increases, the amount of labor a business demands decreases. Minimum wage restricts the supply
and demand of the labor market. Presence and achievement of “market equilibrium”. Market
equilibrium is a market state where the supply in the market is equal to the demand in the
market. The equilibrium price is the price of a good or service when the supply of the product is
equal to the demand for the product in the market. If a market is at equilibrium, the price will not
change unless an external factor changes the supply or demand, which results in a disruption of
the equilibrium. As the minimum wage rise above market equilibrium, unemployment will rise
because labor supplied increases while labor demanded decreases. However increasing minimum
wage can eliminate the suffering of the complaining workers. Besides increasing minimum wage
enables market efficiency because it brings demand closer to equilibrium. This causes demand
for goods and services from other markets to increase, which leads to higher prices.

Minimum wage must continue to increase for wages to keep pace with inflation, which causes
negative externalities for businesses. When companies expand, they require more workers to run
their business efficiently. Knowledge and skill determine wages and these jobs pay higher wages
because of the knowledge employees have. Therefore it is justified for a skillful and multiple
years and firm experienced worker to be unhappy with a recently recruited grade 7 worker
enjoying a healthier increment.

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 Conclusion

Labor unrest is a complicated issue. Many interest groups as well as stakeholders dominate the
issue. Each group evaluates this matter from different point of view. Role as well as performance
of labor union during the riot and prior to that has great influence as the individual perception.
Among all the industries RMG has the higher contribution to earn foreign exchange. Definite
success of this industry very much depends on the performance of the labors as well as the
owners. Success of RMG was seriously challenged during the riots. Communication and
psychological gap exist between owners and labors of RMG sectors. Some effective mechanism
is needed to address this gap. In this report we have highlighted the latest riots of the RMG
workers when the increase in minimum wage was not what they had expected. Although the
simple solution would be to increase the minimum wage again but that also can have a negative
impact in short and long term which we have discussed in the report. The right course of action
would be to find a middle ground and settle the issue as quickly as possible because if the issue
is not resolve then Bangladesh’s most profitable sector will start to lose money which is very bad
news for the economy. As the minimum wage is decided by the government and they make this
decision based on various stakeholders and the employees are major stakeholders and the
decision is always decided based on their benefits. Despite that, employees are not satisfied so
now it’s time to change their mindset and BGMA and Trade Unions should try to help the
employees to absorb the knowledge of the real world in RMG sector and its condition.

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 Recommendations

Labor riots are somewhat understandable as in Bangladesh a minimum wage of TK 8000 is not
enough for a small family to survive on. Hence, we would recommend the owners of the RMG
and also the government to further evaluate the matter and increase the minimum wage. We have
also listed some of the advantages we think are possible if an increase of minimum wage are
provided:

 Workers develop a loyal attitude towards their employers longer which reduces
employee turnovers and avoid recruitment costs
 Lower unemployment and higher wages increase tax revenues.
 When workers earn higher wages, they rely less on governmental facilities which is a
good for the economy and the crime rate and activities drastically falls.
 Boots status and raising the minimum wage would bring struggling workers out of
poverty
 An increasing in minimum wage in a consistent manner allows workers to cope up
with price inflation.
 Providing more money to people readily spends boost the economy.
 Increased wages and spending raise demand and create more jobs.

 Apart of increasing wage employers can provide other benefits

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 References

 https://www.researchgate.net/publication/299411195_Minimum_Wage_in_Bangladesh's
_Readymade_Garment_Sector_Impact_of_Imbalanced_Rates_on_Employee_and_Organ
ization_Development
 https://smallbusiness.chron.com/impact-raising-minimum-wage-4938.html
 https://theconversation.com/raising-the-minimum-wage-in-restaurants-could-be-a-win-
for-everyone-125036
 https://bangladeshaccord.org/
 https://cleanclothes.org/about
 https://www.thedailystar.net/city/ready-made-garment-rmg-workers-protest-agitate-in-
dhaka-savar-ashulia-1685545
 https://qz.com/1540275/5000-garment-workers-in-bangladesh-were-fired-after-
protesting-low-wages/
 https://www.thedailystar.net/business/bangladesh-garment-workers-salary-structure-be-
revised-1686979
 https://www.thedailystar.net/business/news/bangladesh-rmg-garment-workers-minimum-
salary-8000-taka-announced-1633342
 http://www.newagebd.net/article/41688/compensation-may-increase-in-bangladesh-
labour-law?fbclid=IwAR2Ft2BdnE1Fjzj-gPlTzPk-
MZYi6uwvbub7LvZiUWVg1hdWHWO_oH6ZLMI

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 Appendix B (News Articles)

 Mirdha, R. U., & Akash, A. R. (2019, January 15). Readymade Garment Sector: Revised
wage sees protests subside. Retrieved July 27, 2019, from
https://www.thedailystar.net/business/news/rmg-workers-reject-raise-continue-agitation-
1687363
 Shibli, A. (2015, March 07). The struggle for minimum wage. Retrieved from
https://www.thedailystar.net/the-struggle-for-minimum-wage-41303
 Correspondent, S. (2018, September 13). Taka 8,000 a month. Retrieved July 27, 2019,
from https://www.thedailystar.net/business/news/bangladesh-rmg-garment-workers-
minimum-salary-8000-taka-announced-1633342

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