Slump in real wage slows down extreme poverty reduction

Abdul Kader, a Sirajganj farmer, is now thinking of selling a part of his 52 decimal farmland to repay the money he borrowed for cultivation.

Due to a low price of paddy last season, he could not manage to recover the production cost. Besides, heavy rains added insult to injury by damaging his vegetable fields which he pinned hopes on to recover from the shock.

The farmland is his only source of livelihood to barely manage a four-member family all the year round. But selling 15 decimals of it, said he, might put him in deep uncertainty over maintaining the family.

"I could hardly manage livelihood for my family based on the land. But I do not know how I would maintain the family after selling the land," Abdul Kader looked profoundly worried.

Kader's is a story of how simply people get down to the poverty line even after the country enjoyed an over eight percent economic growth last fiscal year.

More than 500 farmers at Abdul Kader's village at Belkuchi are now passing days in disquiet for their livelihood in the days to come.

According to the Bangladesh Bureau of Statistics (BBS) data, the rate of poverty reduction in the country has slowed down significantly over time.

Between 2000 and 2005, extreme poverty declined by 1.8 percentage points per year. But in the next five years, it fell more slowly, 1.5 percentage points per year.

In the following five years, between 2010 and 2016, it reduced even more slowly, only 0.8 percentage points per year.

This slowdown has occurred despite acceleration in the growth of Gross Domestic Product (GDP) which went up from 5.6 percent per annum during the 2000-2010 period to 6.4 percent during the 2011-2016 period.

The Bangladesh Institute of Development Studies (BIDS) Director General KAS Murshid said the slowdown in the pace of poverty reduction could be a consequence of losing the relation between the national GDP growth and the rural economy.

"The GDP growth is not participatory and broad-based, and the growth of agriculture is decreasing over time. These could be the main factors why the disjunction between the pace of poverty reduction and that of the GDP growth has occurred," he added.

The BBS data reveal agriculture's contribution to the GDP has decreased considerably over the years. In 2010, agriculture put up 17.81 percent to the GDP but the contribution came down to 13.31 percent in 2016.

The BBS data also show that the national poverty has dropped by more than six percent during the 2010-2016 period, but in Rangpur and Dinajpur regions that mainly rely on agriculture for livelihood, the poverty rate has increased by five percentage points.

This evidences a reverse relation between the GDP growth and the agriculture-based rural economy.

A BIDS study conducted by SR Osmani has revealed that some other forces, apart from a weakening relation between the GDP growth and the village economy, are also responsible for the poverty reduction slowdown.

In the study paper named "Aspects of the Poverty Scenario in Bangladesh, 2010-2016," Osmani said a decline in real wages and increasing inequality are two vital players in slowing down the poverty reduction rate.

The study states the main reason for the recent slump in the pace of poverty reduction can be traced to the reversal in the growth of real wages of unskilled workers since about 2010.

According to the BBS data, real wage – the gap between nominal wage and inflation – was rising steadily in the 2000s, but then it fell or, at best, stopped rising in the next decade.

In the 2010s, nominal wage was seen increasing by five to six percent with more than six percent increase in inflation.

"Since the poorer segment of the population relies predominantly on the sale of labour for their livelihood, declining real wages inevitably exerted a downward pressure on the pace of poverty," says the BIDS report.

The analysis presented in the paper shows that the decline in real wages can, in turn, be traced to a massive upsurge in rural to urban migration that has taken place since around 2010, caused by both push and pull factors.

The excessive increase in the supply of poor workers in the urban labour market dashes their hope by pulling real wages down.

Falling urban wages are then reflected in the stagnation of rural wages as well, the study reads.

Decline in real wages can be seen as a proximate reason for both the slowdown in poverty reduction and the worsening of income inequality in recent years, according to the study.

The study also states the western region of Bangladesh has performed worse than the eastern part in reducing poverty, mainly because the west has a much higher prevalence of relatively low remuneration occupations such as day labour and self-employment in agriculture.

But the east has a higher prevalence of relatively high remuneration occupations such as salaried employment and self-employment in non-agriculture sectors, adds the BIDS study.