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Tuesday, February 21, 2012

Wage rate and inflation in BD

Rejaul Karim Byron from the Daily Star writes on the recent inflationary impulse and the corresponding wage growth rate. He attempts to show that wage increase in FY11 doesn't match with the inflation rate, which eventually brings misery on peoples' living standard.

Here is the link of the article.

Comment: Against the claims of the pro-market economists, the strong demand side impact of recent high growth (or, the effect of money supply growth) is not reflected in the data of wage rate growth. That means, the second round effect of food inflation (higher food inflation - higher nominal wages – higher demand for goods – higher inflation again) is clearly weak in the current economic situation.

I partially agree with what Mr. Zahid Hossain, Senior Economist from the World Bank explained.

(i) I completely agree with the issue that the overseas employment of Bangladesh workers has a permanent impact on the employment (and wages) in domestic market, but only on the unskilled jobs (and wages). And I will suggest policymakers to think for an optimum level of overseas employment to keep the local unskilled employment at the competitive level. It is particularly important for the export-oriented industries to keep them competitive in the world market.

(ii) But I don’t agree with the claim that the whole employment market will react only with the overseas employment because we don’t export the skilled workers. The wage rate reported in the article not only represents the wages of unskilled workers, but also skilled workers (please read what MS Rahman, an employee in a private company in the capital says). Moreover, we know that the overall economy has been under pressure since the beginning of FY11 because of global economic turmoil (please look at the growth of export and imports) and stock market crash, back in December 2010 and these have an impact on the wage increase. A part of the blame must go to the ongoing economic slowdown.

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