Does employment status matter for the wellbeing of rural households in Bangladesh?

Selim Raihan and Fatima Tuz Zohora

In rural Bangladesh, a great challenge is to tackle the low pay, poor-quality jobs that are unrecognized and unprotected by law, widespread underemployment, the absence of rights at work, inadequate social protection, and the lack of representative voice. There remains a big question whether poverty in rural Bangladesh is concentrated in certain employment categories.

Our paper uses the data from the Bangladesh Integrated Household Survey (BIHS) of IFPRI. This data are nationally representative data of rural Bangladesh for the year 2011-2012 where the sample size is 6,500 households in 325 primary sampling units (PSUs). The reason for using the BIHS database for this study is that this is the latest available survey data on rural Bangladesh. Our paper has attempted systematic analysis in understanding the association between employment status and wellbeing of rural households in Bangladesh.

From the BIHS data, our study has used consumption expenditures as the principal indicator of household economic status or wellbeing, and has used per capita consumption expenditure as the proxy for income. The total consumption expenditure is measured as the sum of total food consumption and total non-food expenses excluding lumpy expenditures. Income (expenditure) deciles have been created by dividing the households into ten groups from the lowest to the highest in terms of households’ total income. Employment statuses have been constructed for those household heads who are able and eligible to participate in the labor market. By definition, the labor force consists of everyone above the age of 15 who is employed (including individuals working without pay) or unemployed but actively seeking employment. Household head, not counted in the labor force, includes students, retired people, disabled people, and discouraged workers who are not seeking work.

The distribution of the different employment categories in the labor force is shown in Figure 1. In the x-axis, 10 deciles are organized in ascending order on the basis of monthly consumption expenditure of the rural households. Therefore, first decile is the poorest one and the 10th decile is the richest one. The figure summarizes that, while wage employment is mostly concentrated in the poorer deciles, self-employment is concentrated mostly in the richer deciles. Salaried employed maintains smaller shares among poorer deciles.

Fig1

Fig2

Fig3

Figures 2 and 3 show the educational status of the male and female workers by employment categories in the rural areas. Males with no education seem to be highly concentrated in the wage employment in both farm and nonfarm sector. They are also densely present in the self-employment activities. In the salaried employment category, the dominant share is of the males with less than secondary level but higher than primary education. However, males with HSC and beyond HSC account for around 25% of the salaried employment. Females with no education also seem to be highly concentrated in wage employment (Figure 3). Females with less than primary education has a dominant share in the case of unemployed (55.56 %). In the case of the unpaid family job for the female adults, around 28% of them are with less than secondary but higher than primary education.

In order to investigate the factors affecting wellbeing of rural household in Bangladesh we have used the cross section multinomial logistic regression models. The income status of the household is considered as the dependent variable, where per capita consumption expenditure is used as a proxy for households’ income status. For the explanatory variables, we have used different categories of employment of household head e.g. wage labor in the farm and nonfarm sector, self-employed in the farm and nonfarm sector, salaried worker and unpaid worker. All of these variables are dummy variables, where ‘unemployed’ has been considered as the base employment status. Other explanatory variables are age of household head, years of education of the head, number of dependent members per household, per capita landholding and a dummy variable on whether the household receives international remittance or not.

The major findings from multinomial logistic regressions can be summarized as follows. First, wage employment in the farm sector has statistically significant association with all income declies between 6 and 10. However, such employment status doesn’t have any statistically significant association with income deciles between 2 and 5. For a wage worker in the farm sector, relative probabilities to be in deciles 6, 7, 8, 9 and 10 are respectively 39 percent, 44 percent, 75 percent, 85 percent and 90 percent lower than to be in decile 1. The result depicts the fact that wage employment in the farm sector are more concentrated among the poorer households and doesn’t play any pivotal role in shifting up the status of a household. The result is quite analogous for the wage-employed in the nonfarm sector too: if the household head is employed in nonfarm activities, the relative probability to be in the deciles 9 and 10 are 62 percent and 78 percent lower (respectively) than to be in decile 1.

Second, in case of self-employment, if the household head is engaged in the farm sector, the relative probability of that household to be in decile 10 is 44 percent lower than to be in the base decile 1. This association is insignificant for all other deciles meaning that, self-employment in the farm sector does not necessarily improve the income status. On the contrary, if the household head is self-employed in the nonfarm sector, the relative probabilities to be in deciles 3, 4, 5, 6, 7, and 8 compared to the base category are higher by 90 percent, 86 percent, 124 percent, 84 percent and 72 percent respectively. It shows that, self-employment in nonfarm sector has a strong transitory power to improve household wellbeing.

Third, when considering salaried employment, the study finds no significant influence of salaried employment over shifting the well-being status from income decile 1 to higher income deciles. On the other hand, if the household head is employed as an unpaid worker the relative probability to be in deciles 8, 9 or 10 is more than 80 percent lower than to be in the decile 1.

Among other variables, household characteristics like age of the head, dependent member per household, per capita land holding and remittance status hold significant impact on the nature of economic status of the household. If the age of the household head increases by one additional year, the relative probability to be in the top four deciles compared to the decile 1 increases by around 1.2 percentage points. It is also seen that, with the rise in number of dependents in a family the relative probability of the household to be in a higher decile compared to decile 1 becomes lower. The regression results also suggest that, education and international remittances play a role of pull factor in case of shifting household status from the lowest decile to upper deciles. An increase in the years of education of the household head by one additional year increases the relative probability to be in decile 2 compared to decile 1 by 10 percentage points; whereas, for the same increment, the relative probability to be in decile 10 compared to decile 1 increases by 35 percentage points. In case of remittances, households that receive remittance have more than 3 fold relative probability to be in decile 4 or above. For the remittance receiving households, the relative probability to be in decile 10 compared to the decile 1 is more than 25 times higher than a household that does not receive remittances.  Along with these, per capita land holding is appeared as an important household characteristics that can help a household to be on the higher deciles.

The findings of this paper provide a significant indication that rural nonfarm sector has a crucial role in reducing poverty and increasing the wellbeing of the rural household in Bangladesh. The study also specifies the importance of addressing the concern in the national policy making that poverty in rural Bangladesh is highly linked with certain employment categories.

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Do education and skill development affect the transition from ‘good-enough’ job to ‘decent’ job?

Selim Raihan and Mahtab Uddin

Majority of studies conducted on decent job primarily focused on the demand side issues. However, there is a need to explore the supply side issues as the composition of labor supply itself can be a determining factor in the status of decent job. This article follows the definitions of good-enough job, good job and decent job from Raihan (2014) where the author argues that there could be three stages for moving towards ‘decent’ job. The first stage is the ‘good-enough’ job which shows the transition from no job to job or from unpaid family job to paid-job. The second stage is the ‘good’ job which shows the transition from ‘good-enough’ job to job with better return, formal job security and enhanced workers’ rights. The third stage is the ‘decent’ job, which is the transition from ‘good’ job to a state of productive employment in compliance with agreed international standards of working environment and workers’ rights.

We use the Labor Force Survey data of 2010 (LFS 2010) for Bangladesh and the available indicators in that survey, and classify the jobs as per the above mentioned definitions. As the data and questions in the questionnaire of LFS 2010 are different for wage employed and self-employed, we consider different indicators for defining quality of jobs for wage employed and self-employed.

The data from LFS 2010 suggests that while the decent job appears to be only 10.1%, good job and good enough job constitute 36.4% and 53.5% respectively of total wage employed. For self-employed, decent job comprises 9.2%, while good job and good-enough job constitute 39.2% and 51.6% respectively.

To see the impacts of education and training on the quality of job that a person may avail, after controlling for other factors, we use multinomial logistic regression involving three categories of aforementioned job with good-enough job as the base category.

In the regression involving the wage-employed, we find that education and training has highly significant impact on moving from good-enough job to good job and decent job. Though, primary education is found to be insignificant in changing the quality of job, persons with secondary and higher secondary education have almost 20% higher probability to be in a decent job compared to persons with no-education. The impact of education is found to be the highest for university education: being educated in a university increases the probability to be in a good job by 23% while it increases the probability to be in a decent job by 26%. Moreover, education of the household head has a statistically significant and positive trans-generational impact if the household head has more than primary education. The results also indicate that, training helps to move people up from good-enough job to good job or decent job. Compared to persons without training, a trained worker has 8% higher probability to be in a good job and 4% higher probability to be in a decent job.

To understand how education and training shifts the quality of job we also calculate the relative risk ratio (RRR) of the corresponding variables for each category compared to the base category. We find that RRR is significant for all other levels of education except primary education. For a person with a secondary education relative to no-education, the relative risk (RR) for decent job compared to good-enough job would increase by a factor of 27.4. The RR for decent job compared to good-enough job would increase by factors of 39.1 and 284.3 for attainments of higher secondary and university education respectively compared to the no-education category. These results indicate the strong capability of higher education in lifting up the quality of job as opposed to no-education. Although small in magnitude, training does have a highly significant impact. For persons with training in comparison to persons without training, the RR for decent job compared to good-enough job increases by a factor of 2.2 holding all other variables constant.

For the self-employed, the regression results show that education levels higher than primary education have statistically significant impact over moving from good-enough job to good job or decent job. Persons with secondary or higher secondary education have more than 10% higher probability of having a good job compared to no-education category. Having a university degree provides 4% higher probability to be employed in a decent job compared to no-education category. However, impacts of training is found to be insignificant in cases of such transitions. A possible explanation is the very low percentage of people (only 4.6%) in the self-employed participating in any training program in the LFS 2010 data. In terms of RRR, having primary education compared to no-education does not improve the Relative Risk (RR) for decent job compared to good-enough job. However, having secondary or higher secondary education compared to no education increases the RR for decent job compared to good-enough job by more than a factor of 1.6. With a university education compared to no-education the RR for decent job compared to the good-enough job increases by a factor of 1.7 holding all other things constant.

Raihan, S. 2014. “From ‘Good-enough’ Job to ‘Decent’ Job: Inclusive Growth in Transition in Bangladesh.” Thinking Aloud. Vol. I, No. 4. Dhaka.

Published at the Thinking Aloud on 1 December, 2015

From ‘good-enough’ jobs to ‘decent’ jobs

Though there are many views on ‘inclusive growth’, the key consensus is that inclusive growth is a growth process which reduces poverty, inequality and social exclusion and promotes ‘decent’ jobs and economic and social cohesion. A ‘decent’ job is referred to as a productive job for women and men in conditions of freedom, equality, security and human dignity. It also involves opportunities for work that deliver a fair income, provides security in the workplace and social protection for workers and their families (ILO, 2011, Working with the ILO – Decent Work and System Wide Coherence, Geneva).

The economy of the country had been growing at a rate of above five percent over the last two decades. There are arguments that such growth in Bangladesh has been largely ‘inclusive’ in nature and that Bangladesh has been successful in generating ‘good’ jobs by improving farm-non-farm, rural-urban inter-industry inter-sectoral labour mobility at a relatively low skill level that had poverty reducing and social cohesion enhancing effects (Mahabub Hossain, Binayak Sen and Yasuyuki Sawada, 2012, Jobs, Growth and Development: Making of the “Other” Bangladesh, WDR 2013 Background Paper). Such claims demand careful examination as it is not clear what the definition of ‘good’ job is in the context of Bangladesh’s economy. It is equally important to understand what needs to be done in the transition toward a regime of ‘decent’ jobs.

‘Decent’ jobs should be regarded as a dynamic and progressive phenomenon. There could be three stages for moving toward attaining a ‘decent’ job. The first stage is the ‘good-enough’ job which shows the transition from no job to job or from unpaid family job to paid-job. The second stage is the ‘good’ job which shows the transition from ‘good-enough’ job to job with better return, formal job security and enhanced workers’ rights. The third stage is the ‘decent’ job, which is the transition from ‘good’ job to a state of productive employment in compliance with agreed international standards of working environment and workers’ rights.

Apart from the RMG, employment in all other sectors has largely been for men, and mostly informal in nature. Rise in employment in agriculture, both in the crop and non-crop sectors, has been associated with agricultural growth and rise in agricultural real wage, with virtually no progress towards ‘good’ jobs. Rise in employment in the rural non-farm and urban informal sectors has also happened without much progress towards the creation of ‘good’ jobs in these sectors. For men, such expansion has helped them to move out from unemployment or unpaid family labour to ‘good-enough’ jobs. For women, employment in the RMG sector, in most cases, is a manifestation of the transition from no labour force participation or unpaid family jobs to paid-jobs. Such paid-jobs in most of the RMG factories are largely ‘good-enough’ in nature, which however have also contributed to the reduction in poverty and generating growth in Bangladesh.

It is equally important to understand the quality of structural transformation that has happened in the process of economic growth in Bangladesh. Though the share of industrial sector in GDP has increased from around 20 percent in the early 1990s to around 30 percent by late 2000s, with a simultaneous reduction in the share of agricultural sector, there is still a long way to go for the creation of large scale ‘good’ jobs in the urban sectors. This will require both quantitative and qualitative changes in the current pattern of structural transformation of the economy. The economy is yet to have a strong and diversified manufacturing base, which requires supporting macroeconomic, trade and industrial policies and removal of policy-induced and supply-side constraints.

In the near future, for the promotion of inclusive growth, the challenge of Bangladesh’s economy is how to transition from the current state of ‘good-enough’ jobs to large scale ‘good’ jobs. In the medium to long term, the prospect of inclusive growth in Bangladesh would depend on how the growth momentum would be able to generate successful transition toward a state of ‘decent’ job.

Published at the Thinking Aloud on 1 September 2014

Published at The Daily Star on 25 May 2015

 

The Manufacturing Sector in Bangladesh: Is it a sustained driver of economic growth and employment creation?

The Bangladesh economy has witnessed significant structural changes over the last four decades. The share of agriculture in GDP has declined while the relative significance of industry and services sectors has increased substantially. Over the past two decades or so, Bangladesh has experienced sustained overall economic expansion. However, the economy is yet to have a strong manufacturing base. The pace of reduction in agriculture’s share in overall employment has however been much slower than the pace of reduction in agriculture’s share in GDP. This suggests that growth in the overall manufacturing and services sectors have not been strong enough to reallocate surplus labour from agriculture. This indicates that as far as the overall manufacturing sector is concerned, there remains a challenge for employment creation at a larger scale.

Manufacturing is now an overwhelmingly salient component of the country’s export composition, thanks largely to the rapid expansion of the RMG industry. RMG has been an important contributor to the growth and employment generation in Bangladesh. However, the question remains as to whether the current structure of the manufacturing sector would continue as a sustained driver of economic growth and employment creation in Bangladesh in the future because of two reasons. Firstly, given the existing heavy reliance on the RMG sector and weak performance of most of the non-RMG manufacturing sectors, achieving sustained and long term growth in the manufacturing sector in Bangladesh remains a challenge. Secondly, it can be argued that the growth in the RMG sector in Bangladesh has, to a large extent, been driven by some sizeable ‘rents’ generated in this sector, and there are possibilities of shrinking the sizes of such ‘rents’ in the future due to both domestic and international factors. There have been five major sources of ‘rents’: the Multifibre Arrangements (MFA) quota (which no longer exists) and the Generalised Systems of Preference (GSPs); different forms of subsidies; tax exemption; the labour regime; and compliance.

The MFA regime was phased out by the end of 2004, though the GSP facility of the EU is still in place. However, there are concerns with regard to the continuation of such facilities in the future on grounds of lack of compliance, weak labour standards and the conflictual political situation in Bangladesh.

The RMG industry also enjoys support from the government in the form of export subsidies, interest rate subsides and subsidies on the cost of utilities. ‘Rent’ in this sector is also generated by the tax exemption facilities. It is estimated that the size of the tax foregone in the RMG sector due to the provision of tax exemption facility in recent years could be as high as 6.3 percent of the total tax revenue. However, the size of such ‘rent’ could shrink over time due to the budgetary constraints of the government.

Over the past three decades, the RMG industry has benefited from a labour regime, supported by the major political parties, which has been able to keep the wages of labour in this industry very low. However, recent labour unrest over the hike of the minimum wages in this sector as also the pressure exerted by the international community poses serious challenges in terms of the ‘sustainability’ of such a labour regime. Similarly, a regime of lack of compliance, especially with regard to the working environment and factory standards, in the context of weak regulatory institutions, has generated ‘rent’ for this sector over the years.

However, such ‘rent’ has become highly unsustainable due to the serious international pressure for enforcing compliance in the wake of recent incidents of fire and building collapse, which have resulted in a large number of deaths of RMG workers. All these developments suggest that the RMG sector in Bangladesh needs to undergo some major structural changes in the future for ensuring its sustainability, which would have important implications for the growth of both the manufacturing sector as also of the overall economy.

Against this backdrop, it is important to highlight that in order to become a sustained driver of economic growth and employment creation in Bangladesh, the manufacturing sector needs to lay stress on expanding and diversifying its base. It is important to support macroeconomic, trade and industrial policies, and to address the policy-induced and supply side constraints, which have hampered the growth of the non-RMG sectors. Some of these constraints include the lack of investment funds and working capital, prevalence of high interest rates, shortage of skilled workers, lack of entrepreneurial and managerial skills, availability of poor physical infrastructure, and inefficient ports along with high transport costs, weak institutions, a poor law and order situation, and high invisible costs of doing business, among other things.

Apart from RMG, the export response of all other major commodities has been very weak. The RMG sector also appears to be the main beneficiary of the export incentives while for the non-RMG sectors, such schemes have proved to be less effective. This situation also raises a critical question as to whether rents are needed for the promotion of the non-RMG sectors. The current industrial policy highlights the importance of economic diversification and of providing incentives to other sectors in order to generate some rents in the non-RMG sectors. However, it should be kept in mind that the manner in which the RMG sector has been able to generate ‘rents’ through the suppressed labour regime and weak compliance is not sustainable and cannot be replicated in the other sectors. Hence, there is need for a well-designed and effective industrial policy wherein monetary (interest rate subsidies) and fiscal incentives (reduced taxes or tax holidays) should be transparent and time-bound. The current industrial policy, however, lacks vision and is also poorly designed. In addition, industrial policy needs to address issues of education and skill development for facilitating higher capabilities, in which Bangladesh is lacking.

First published at the Thinking Aloud on 1 June 2014

Published at The Daily Star on 9 may 2015