There is no denying that Bangladesh’s economy has made remarkable strides over the last decade, and per capita income has risen significantly. However, labour wages have largely failed to keep pace with the steadily rising inflation during the period.
This phenomenon clearly indicates that real wages are declining, which in turn is reducing the purchasing power of low income people – who depend on their daily wages to make ends meet.
Purchasing power parity (PPP) is a popular macroeconomic analysis metric to compare economic productivity and standards of living between countries. PPP is an economic theory that compares different countries’ currencies through a “basket of goods” approach.
According to this concept, two currencies are in equilibrium – known as the currencies being at par – when a basket of goods is priced the same in both countries, taking into account the exchange rates.
In 2022, the PPP was below $1.9 per day for a staggering 2.7 per cent or 45,85,380 employed population of Bangladesh, show Asian Development Bank (ADB) data.
Economists say although Bangladesh achieved high economic growth in the last decade, the wage rate did not increase compared to inflation. ADB data indicate that the public at large are not getting the benefit of a decade of economic progress.
This disparity is also preventing the poverty reduction rate in Bangladesh from reaching the expected level. Income and consumption inequality is increasing, furthering socio-economic instability.
USD crisis and inflation
The country’s people are under high inflationary pressure since last FY due to the price hike of nearly all essential commodities – a ripple effect of the ongoing Russia-Ukraine war, and the resultant USD shortage.
Though the situation has become dire only recently, an analysis of data collected by the finance ministry and Bangladesh Bureau of Statistics (BBS) show that the people have been fighting a bitter war against inflation for over a decade.
Over the span of the last twelve years, the rate of inflation remained higher than wage growth in most years. The difference was negative from FY12 to FY15, which means the wage growth was lower than inflation rate.
This difference was positive from FY16 to FY21, but it was barely above zero. It became negative again in FY22 and FY23.
On the issue, eminent economist and former director general of Bangladesh Institute of Development Studies (BIDS) Mustafa K Mujeri said, “Since the wage rate has not increased much compared to inflation, the overall economic condition of the poor is not improving much.
“Their main source of income is daily wages. Since wages are less than inflation, this means the poor are losing their purchasing power.”
Former lead economist of World Bank Dhaka Office Zahid Hussain said, “Available data indicate that the real wage growth has always been weak. Real wages declined in FY22 and FY23, implying that the income is declining for people who depend on wage labour for livelihood.
“This could slow, and may even reverse, the pace of poverty reduction in Bangladesh. This phenomenon certainly contributed to the increase in income inequalities.”
According to finance ministry data, the country’s average GDP growth rate was 6.46 per cent from FY12 to FY23.
CPD Senior Research Fellow Towfiqul Islam Khan said, “The wage rate is not increasing in line with the increase in commodity prices. As a result, the purchasing power of the poor is decreasing.
“So, the underprivileged are trying to increase their income by working harder than ever before.”
Inequality and poverty
To eliminate inequality in society, the rate of real wage growth must be higher than inflation and GDP growth rates, say economists, adding that sadly, this is not the case for Bangladesh.
The wealth is now concentrated in a select few, causing Bangladesh's position in the inequality index to rise.
Zahid Hussain said, “To curb income inequality, real wages have to grow at the same rate as GDP. This means the difference between nominal wage growth and inflation must be equal or larger than the GDP growth.”
Echoing the same, Mujeri said, “Overall inequality is increasing, and income inequality is increasing sharply. Inequality is increasing in terms of wealth, income and expenditure.
“Wages are decreasing, while the non-wage component is increasing. But the poor have less access to such components. As a result, despite our high growth over the last decade, the capacity of that growth to reduce poverty is not satisfactory.”
A grim reality
The Gini coefficient – another popular economic indicator – is based on the comparison of cumulative proportions of the population against cumulative proportions of income they receive.
It ranges between 0 in the case of perfect equality, and 1 in the case of perfect inequality.
According to the Household Income and Expenditure Survey (HIES) of 2022 prepared by the BBS, the country’s Gini Coefficient stood at 0.499, an increase from 0.482 recorded in 2016 and 0.458 in 2010.
Analysis of available macroeconomic data shows that the reduction rate of upper poverty is lagging behind the lower poverty line.
According to the World Bank poverty map and BBS data, the upper poverty line of Bangladesh was 31.5 per cent and lower poverty line was 17.6 per cent in 2010.
In 2016, the upper poverty line dropped to 24.3 per cent and lower poverty line to 12.9 per cent. The upper poverty line further declined to 18.7 per cent and lower poverty line to 5.6 per cent in 2022.
This data shows that the upper poverty line declined by 7.2 percentage points between 2010 and 2016, and dropped by 5.6 percentage points between 2016 and 2022.
Meanwhile, the lower poverty line declined by 4.7 percentage points between 2010 and 2016, and dropped by 7.3 percentage points between 2016 and 2022.
