Living gets tough

February 21, 2012

Inflation dwarfs wage growth
All’s not well when it comes to cost of living and wages in the country.
According to the data of Bangladesh Bureau of Statistics (BBS), due to high inflation the real wages of the working class people suddenly marked a sharp drop last fiscal year.
As the inflation has exceeded 10 percent this year, the common people should expect more economic misery than any other recent years.
And it is not just the working class that is being affected by the rising inflation and low wage growth. Middle and upper middle class people are also feeling the bite now.
“My salary increased by just five percent last year while my cost of living, I believe, increased by two to three folds,” said MS Rahman, an employee in a private company in the capital.
Rahman said he now works extra to cover the rising living cost.
From essential food items to transport cost, and from personal care products to house rent — prices of everything marked sharp rise in the last two years.
The wage growth rate in manufacturing and construction sector fell by 6 percentage point, and in the agriculture sector by 10 percentage point.
Around 90 percent of the total labour force is employed in manufacturing, construction, agriculture, and fisheries sectors, according to BBS.
The scenario of wage growth was quite opposite between fiscal years 2008 and 2010. According to the BBS data, general wages of workers in major sectors like manufacturing and agriculture grew at an excellent rate of more than 11 percent back then.
With inflation hitting 8.8 percent, the wage growth rate dropped down to a frustrating 3.95 percent last fiscal year. A Bangladesh Bank official said if the inflation is adjusted with the wage growth rate the real income has decreased in the recent times.
The data for the current fiscal year might be available after June this year.
The recently released Bangladesh Bank annual report (2010-11) observes, “Purchasing power of the poor people has been slower due to lower wage rates against high inflation.”
This finding contradicts with the BBS chief’s recent remark that while inflation has been on the rise, people’s purchasing power has also gone up.
World Bank senior economist, Zahid Hussain, explained the decline in real wages.
“This happens when the labour supply growth exceeds labour demand growth. The labour supply has grown steadily at 3.6 percent per annum during 2006 and 2010. Domestic employment growth during the same period was 3.5 percent per annum. Nominal wages grew at double-digit rates in all sectors and far exceeded the inflation rates during fiscal years 2008 to 2010.”
He wrote in an email, “This was a period of booming manpower exports which tightened labour supply in our internal labour markets leading to increase in real wages. Manpower exports slowed considerably in FY11 relative to the annual average number exported during FY08-10. Consequently, supply side pressure in the domestic labour market increased, thus lowering real wages.”
The wage growth rate fell while general inflation grew by double digits over the last 11 months. In the last two months both food and non-food inflation were in the range of two digits.

Courtesy of The Daily Star

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