With increased attention on growing wealth inequality, many have turned their scrutiny to wages. Boosting workers’ earnings is a clear route to achieving greater equality and more sustainable and inclusive economic growth.
But the question is how? One answer, as recent analysis by the JustJobs Network illustrates, is through countries diversifying their manufacturing sectors.
Let’s take Bangladesh and Vietnam as examples. Both countries are among the largest garment manufacturers in the world, and both have tied their industrial expansion to the garment sector.
There’s one big difference: real wages in Vietnam’s garment sector have been on the rise and real wages in Bangladesh’s have been stagnant.
From 2000 to 2011, according to a report by JustJobs Network and the Workers Rights Consortium, real wages in Vietnam grew by almost 40 percent. In Bangladesh they actually declined by more than 2 percent.
The two graphs below begin to show why. They show export volumes of the top three exports in Bangladesh and Vietnam (we take “clothing” (garments) and exclude textiles).
Top Exports in Bangladesh (millions of USD)
Top Exports in Vietnam (millions of USD)
Source: World Trade Organization
These graphs reveal a stark difference between the country where real wages fell (Bangladesh) and the country where they rose significantly (Vietnam): diversification in manufacturing. Beyond garments, no other sector in Bangladesh is a significant contributor to total exports.
What’s that got to do with wages? Part of the story is that Bangladeshi workers are so heavily dependent on one industry – garments – that they lack bargaining power. The garment sector is flooded with willing workers, giving employers the power to pay a pittance.
In Vietnam, garment workers still aren’t earning enough (our report puts 2011 wages at 30 percent of a living wage), but their wages are on the rise. Vietnam has alternative export industries – telecom and machinery – that are large and fast-growing. This creates a tighter labor market where industrial workers have more opportunities. Employers therefore must pay more.
Of course, other factors are at play, and diversification is not a panacea. But all the world’s successful industrial policies – those that have delivered the best wages, working conditions and opportunities for economic mobility – have made diversification a central aim. Countries like Bangladesh must do the same.