Saima Siddiqa

Subject: Labour Economics

Date: 22/06/15

The Effect of a Raise in the Minimum Wage on Employment and Profitabilty in the RMG Sector of Bangladesh, Drawing Sources From Other Developing Countries

The study of minimum wages has led to many debates surrounding the topic whether a raise in minimum wage can kill businesses in profitability and employment or the change in profitability and employment is insignificant. This is a hot topic for policy makers in both developed and developing countries as a raise in minimum wage affects the economy in terms of economic growth, standards of living for the poor, survival of businesses and employment. A lot of research and literature has shown that a hike in minimum wages do not particularly affect the developed nations but the same hikes in developing countries can cause damage to firms depending on the size of the firms and their profitability. This paper attempts to show that the garments sector in Bangladesh (Ready made Garments Industry) faces the same dilemma. Since the Savar tragedy in late 2013 where a garment factory, Rana Plaza, collapsed which killed more than 1,100 people and injured and more than 2,500 people injured, garment workers and civil society demanded a raise of minimum wage from 3000 tk to 5,300 tk every month. This tragedy and similar events in developing countries lead us to think how businesses especially in the developing countries where wage rates and productivity are low can operate if minimum wage is suddenly increased threefold and why workers in those countries work under horrible conditions. This paper will also compare the situation of Bangladesh to other manufacturing countries and state why Bangladesh is different by looking at existing literature on the topic of effects of employment and profitability in firms due to rise in minimum wage.

Overview of Bangladesh’s