Textile workers in Bangladesh got a big pay rise over the weekend, a 77-per-cent increase in the minimum wage to $68 (U.S.) a month, and in Washington, President Obama is backing a bill to raise the U.S. federal minimum wage to $10.10 an hour. Congress should get on with the job and help to create a virtuous global circle of rising wages for the very poor.
Campaigns to boost the lowest pay rates are mushrooming everywhere, from Ontario to Vietnam, where the minimum monthly salary is to increase by 15 per cent to $130 a month. There is mounting anxiety about the consequences – from employers anxious about their profit margins to politicians fearful about the potential loss of low-skilled jobs. In dirt-poor Bangladesh, still mourning the deaths of 1,100 workers in a catastrophic factory collapse in April, there was no question of avoiding a significant increase in pay for the nation's army of seamstresses.
The issue was how big a wage hike garment makers could absorb before the nation's livelihood disappeared to cheaper or more efficient textile-making competitors.
Countries, such as Bangladesh, are at the bottom of the pyramid, producing bargain sportswear and casual clothes at low unit costs. Traditionally, Bangladesh has made up for the poor productivity of its mills with cheap labour. Apparel makers in China pay much higher wages but they bridge the gap with better technology, which enables each worker to make more items. Those who argue against minimum wages point to the likelihood of job losses as Bangladeshi mills invest in machinery to raise their productivity closer to Chinese levels. In the end, more workers will end up jobless with no pay, let alone a minimum wage.
It's a defeatist argument, which would consign yet another generation to a life of low-wage toil in dangerous conditions and it's one that Bangladesh's big customers, the rag trade emperors from Wal-Mart to Hennes & Mauritz, cannot sustain, politically. Indeed, H&M last month decided to take control of two big clothing factories in Bangladesh and a third in Cambodia. Without actually acquiring ownership, H&M has become the sole buyer and is therefore able to control working conditions, safety and product runs. It means more transparency – being in control, H&M will have to fully account for how its clothes are produced and inevitably, it will mean that H&M has a great deal of influence over wage rates, even if the Swedish buyer is not the employer.
This is good news because it means that the world can no longer outsource low wages in the way that it has outsourced the dirty end of making your jeans to a crumbling factory in Dakha. If supply chains are more integrated, the total cost of the product at each stage of its evolution becomes visible from mill to mall. For those who argue that we should leave the Bangladeshi labour market to settle wages at a market level, the answer is simple: The point at which the demand for unskilled labour clears its supply is generally just above the level of abject poverty. We need to consider whether this perfect labour market can generate social progress or whether it needs an external impetus.
That impetus may be better wages which improve opportunities for education, and life chances, the sort of incentives that have already drastically reduced the birth rates in developing countries, such as Bangladesh. The logical consequence of a higher minimum wage in a developing economy is more incentive for capital investment, a virtuous circle that we are already seeing in China. Likewise, higher minimum wages in developed countries means more reasons to work, to improve skills, and disincentives to rely on state handouts. It means more incentive for employers to improve productivity with investment in technology which, in turn creates high-value jobs.
It is hardly surprising that after five years of economic stagnation and falling real wages in the richer world, there is now a clamour for better pay for the less well-off. There is a lot of talk about fairness and the wealth gap but the real reason to end this race to the bottom in wages is to recognize that we desperately need some wage inflation at the bottom, to stimulate more investment at the top.
Carl Mortished