Govt employees pay hike temporarily fuelled poverty

Business Desk :

The government’s decision to raise salaries of all public sector workers by 100 percent in 2015 had inadvertently pushed many least skilled private sector workers below the poverty line temporarily, said a study. This situation occurred as least skilled workers in the private sector could not cope with the new situation that was created in the labor market.
“The 10 percent upward shift in the poverty line led to a significant proportional increase in the poverty rate among private sector workers, representing an approximately 40 percent rise in the poverty rate due to this alteration in the poverty threshold,” the study said.
“If the government’s intervention in the labour market raises the public sector workers’ wage, it directly increases the public-private wage differentials,” Md Al-Hasan, research analyst of the International Food Policy Research Institute (IFPRI), added. The study found that while the most skilled private sector workers could adjust their wages according to the new market conditions, least skilled workers could not do the same. Consequently, they became poorer even within their own group.
If the least skilled private sector workers’ wage and spending remain unchanged, the general price level rise — as a result of increments for other workers leading to a rise in the price of commodities — could lead to new poverty cases among them.
Al-Hasan yesterday presented a paper titled “Intervention in Labor Market and Inequality Creation: A Natural Experiment” at a conference in Dhaka.
The event was jointly organised by the Bangladesh Economics Research Network, Association for Economic and Development Studies on Bangladesh, and Bangladesh Institute of Development Studies (BIDS).
The paper was co-authored by researcher Mehrab Bakhtiar of IFPRI, Prof Syed Abul Basher, and Prof Salim Rashid of East West University.
Al-Hasan said they wanted to analyse the results of government intervention and whether it had unintentionally pushed people into poverty.