Countries around the world, or parts thereof, either delayed, froze or rolled back announcements of a minimum wage hike in 2020 due to the COVID-19 pandemic, as said in the Global Wage Report 2020-21 published by the International Labour Organization (ILO). Economists believe the ILO report shines the spotlight on a crisis that was silently being pushed under the carpet in the name of ease of doing business and labor reforms. The report states that currently 90% of the ILO member states have minimum wage policies in place, either statutory or negotiated through collective bargaining. However, 266 million wage earners worldwide are paid less than the minimum wage either because they are not legally covered or because of non-compliance. The report also emphasizes the effects of the COVID-19 pandemic on wages and its disproportionate effect on women and low-paid workers.
Global pressure on wages from COVID-19 will not stop with the arrival of a vaccine, said ILO Director-General Guy Ryder. He further added, “It’s going to be a long road back and I think it’s going to be turbulent and it’s going to be hard”, when he announced the findings of the ILO’s flagship Global Wage Report, which is published every two years. The report further emphasized on how the pandemic had slowed or reversed a trend of rising wages across the world, hitting women workers and the low-paid hardest.
The largest decline in real minimum wage was in Bangladesh (5.9 percent) and Sri Lanka (4.5 percent). The monthly minimum wage level in Bangladesh was $48 or around Tk4,070 in 2019 – the lowest among all nations in Asia and the Pacific region, reveals the Global Wage Report 2020–21. For the Asia and Pacific region, the average minimum wage is $381, which is 333 times or Tk 18,250 higher than that of Bangladesh. However, the ILO report excluded agriculture and domestic workers while calculating Bangladesh’s monthly minimum wage level.
For the Minimalists
Bangladesh does not have a minimum wage level in every sector and for every job, so the comparison made by the ILO should not be given much heed. Policy Research Institute’s Executive Director Dr Ahsan H Mansur, commented on the matter to The Business Standard, a local newspaper by stating, “Minimum wage is only applicable to Bangladesh’s garments sector, and it has no application in any other ones. Elsewhere, the minimum wage is even lower. The report is not a real reflection of the true picture, and if the minimum wage is increased artificially, it would not be very beneficial at all. If we increase the minimum wage level only in a particular segment and exclude the whole economy, there will not be any positive.”
ILO said, minimum wage policies could help lessen wage inequality, depending on their design and coverage— although it acknowledged that sharp increases in the minimum wage might be “difficult or risky” in some countries in the near term, given the risk of job losses.
You Win Some, You Lose Some
Despite the decline in real wage rates in Bangladesh, the country still boasted the third-highest annualized labor productivity growth of 5.8 percent during the decade, trailing only China (6.8 percent) and Myanmar (5.9 percent). Vietnam in comparison saw its productivity growth to be around 5.1% and observed the highest increase of real minimum wage growth (11.3%). The only country in Asia and the Pacific whose minimum wage does not reach even the lowest international poverty line is Bangladesh, the ILO report said. To add insult to injury, the wage for Bangladesh is below the international poverty line in PPP of $1.9.
Minimum wages are set, on average, around 55 percent of the median wage in developed countries and at 67 percent of the median wage in developing and emerging economies. In developing and emerging economies, minimum-to-median wage ratios range from 16 percent in Bangladesh to 147 percent in Honduras.
As of 2020, 29 countries with statutory minimum wages exclude agricultural workers, domestic workers or both categories from minimum wage regulations. Of these, seven countries – namely, Bangladesh, Cambodia, Jordan, Lebanon, Pakistan, Sudan and Syria – exclude both agricultural and domestic workers. Former lead economist of the World Bank’s Dhaka office, Zahid Hussain, commented to the Daily Star that the real annual wage in Bangladesh is not adjusted annually, taking into account the total labor productivity thus preventing it from being eroded significantly.
Bangladesh revises the minimum wage every five years and it last did so in December 2018, the ILO report. To this Dr. Hussain added, “during this period, the policymakers have not reviewed it, and inflation has always been positive.”
In Bangladesh, inflation has averaged more than 6 percent in the last decade. The ILO report said the pandemic made it more difficult for national authorities to collect statistics. However, there is abundant case study evidence of workers having to accept – at least temporarily – shorter hours and/or wage cuts.
Recommendation from the ILO Report
The report suggests a number of policy measures which can help implement minimum wages effectively. The policies that would be most suitable for Bangladesh can be the following:
Adequate and balanced wage policies, decided though inclusive social dialogue, are needed to mitigate the impact of the crisis and support economic recovery.
In planning for a new and better ‘normal’ after the crisis, adequate minimum wages- statutory or negotiated- could help ensure social justice and less inequality.
To be effective, minimum wages must be accompanied by other policy measures that support the formalization of the informal economy and the growth of productivity among sustainable enterprises.
The more things change the more they remain the same
The COVID-19 pandemic’s impact on global earnings seems to be just another excuse for the slow wage growth across the world. The ILO report mentions that global real wage growth fluctuated between 1.6 percent and 2.2 percent in the four years before the onset of the virus — and excluding China, it was in a much lower range of 0.9 to 1.6 percent. Moreover, for the past two years, wages had also grown at a slower rate than productivity; in other words the share of global output paid to workers as earnings had been falling.
Rosalia Vazquez-Alvarez, one of the authors of the report, commented to the UN News that she believes that adequate minimum wages can protect workers against low and reduce inequality. She further added, “Ensuring that minimum wage policies are effective requires a comprehensive and inclusive package of measures. It means better compliance, extending coverage to more workers, and setting minimum wages at an adequate, up-to-date level that allows people to build a better life for themselves and their families.”
Except for China, which was bouncing back remarkably quickly, most of the world would take a considerable period of time to get back to where it was before the pandemic, which had dealt an “extraordinary blow” to the world and its minimum wage workers almost overnight.
“The aftermath is going to be long-lasting and there is a great deal, I think, of turbulence and uncertainty,” Mr. Ryder said. “We have to face up to the reality, at least a strong likelihood that as wage subsidies and government interventions are reduced, as they will be over time, that we are likely to face continued downward pressure on wages.” But he added that it was unlikely and in many ways undesirable that the world should simply try to return to how it was before the coronavirus struck.