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Escalation of real wages in Bangladesh: Is it the beginning of structural transformation?

In: Securing food for all in Bangladesh

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  • Zhang, Xiaobo
  • Rashid, Shahidur
  • Kaikaus, Ahmad
  • Ahmed, Akhter

Abstract

With about 1,200 people per square kilometer, Bangladesh is one the most densely populated countries on the planet. The reality of intense population pressure is reflected in commonly portrayed images in the popular media, such as crowded buses and trains with passengers on top, endless lines of human-powered rickshaws, and deaths in the thousands from both natural and man-made disasters. With increasing landlessness, and a heavy reliance on labor markets, understanding the dynamics of wage formation in this setting is critically important for identifying the process of economic transformation and poverty reduction. However, both theories and empirics of wage determination in Bangladesh, and elsewhere in developing countries, have intrigued economists for decades. The neoclassical theories, where labor demand and wages are determined by the marginal physical product, cannot explain stable wages amid seemingly unlimited supply of workers and massive involuntary unemployment in developing countries like Bangladesh. The reason is simple: if market clearing conditions hold, unemployed workers should bid down wages until full employment as reached. One set of theories that provide a more coherent explanation of stable wages amid abundant labor supply has been the nutrition-based efficiency wage theory, originally proposed by Leibenstein (1957) and Mazumdar (1959). The premise of this theory is that since productivity depends on consumption, it is in the interest of the employers to pay a wage that ensures minimum calorie requirement of the workers so that they can work effectively.

Suggested Citation

  • Zhang, Xiaobo & Rashid, Shahidur & Kaikaus, Ahmad & Ahmed, Akhter, 2021. "Escalation of real wages in Bangladesh: Is it the beginning of structural transformation?," IFPRI book chapters, in: Securing food for all in Bangladesh, chapter 10, pages 343-374, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:ifpric:9789845063715_10
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    5. Subir Bairagi & Muntaseer Kamal, 2019. "Is Bangladesh’s Economy Approaching the Lewis Turning Point?," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 20(1), pages 19-45, March.
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    8. Shahidul Islam & Subhadip Ghosh & Mohua Podder, 2022. "Fifty years of agricultural development in Bangladesh: a comparison with India and Pakistan," SN Business & Economics, Springer, vol. 2(7), pages 1-41, July.
    9. Sèna Kimm Gnangnon, 2020. "Development aid, remittances inflows and wages in the manufacturing sector," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 278-304, December.
    10. Lopez-Ridaura, Santiago & Frelat, Romain & van Wijk, Mark T. & Valbuena, Diego & Krupnik, Timothy J. & Jat, M.L., 2018. "Climate smart agriculture, farm household typologies and food security," Agricultural Systems, Elsevier, vol. 159(C), pages 57-68.
    11. Hassan, F., 2018. "Farm Wage and Rice Price Dynamics in Bangladesh," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277415, International Association of Agricultural Economists.
    12. Bachewe, Fantu Nisrane & Berhane, Guush & Minten, Bart & Taffesse, Alemayehu Seyoum, 2016. "Non-farm income and labor markets in rural Ethiopia," ESSP working papers 90, International Food Policy Research Institute (IFPRI).
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    14. Sen, Binayak & Dorosh, Paul & Ahmed, Mansur, 2021. "Moving out of agriculture in Bangladesh: The role of farm, non-farm and mixed households," World Development, Elsevier, vol. 144(C).
    15. Hassan, Md. Fuad & Kornher, Lukas, 2020. "Is mechanization in agriculture curse or blessing for the rural labor market in Bangladesh?," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304543, Agricultural and Applied Economics Association.
    16. Aryal, Jeetendra Prakash & Rahut, Dil Bahadur & Maharjan, Sofina & Erenstein, Olaf, 2019. "Understanding factors associated with agricultural mechanization: A Bangladesh case," World Development Perspectives, Elsevier, vol. 13(C), pages 1-9.
    17. Chaudhary, Ashok Kumar & Pandit, Ram & Burton, Michael, 2022. "Farmyard manure use and adoption of agricultural mechanization among smallholders in the Mahottari District, Nepal," World Development Perspectives, Elsevier, vol. 25(C).
    18. Gnangnon, Sèna Kimm, 2020. "Development Aid, Remittances Inflows and Wages in the Manufacturing Sector of Recipient-Countries," EconStor Preprints 213439, ZBW - Leibniz Information Centre for Economics.
    19. Valerie Mueller & Emily Schmidt & Dylan Kirkleeng, 2020. "Structural Change and Women’s Employment Potential in Myanmar," International Regional Science Review, , vol. 43(5), pages 450-476, September.
    20. Paudel, Gokul P. & KC, Dilli Bahadur & Rahut, Dil Bahadur & Justice, Scott E. & McDonald, Andrew J., 2019. "Scale-appropriate mechanization impacts on productivity among smallholders: Evidence from rice systems in the mid-hills of Nepal," Land Use Policy, Elsevier, vol. 85(C), pages 104-113.
    21. Taslim, M.A. & Taslim, Q.N., 2018. "Productivity and Agricultural Real Wage in Bangladesh: 1959-60 to 2012-13," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 41(01), pages 1-30, March.
    22. Aryal, Jeetendra Prakash & Rahut, Dil Bahadur & Thapa, Ganesh & Simtowe, Franklin, 2021. "Mechanisation of small-scale farms in South Asia: Empirical evidence derived from farm households survey," Technology in Society, Elsevier, vol. 65(C).
    23. Md. Fuad Hassan & Lukas Kornher, 2022. "Farm wage and Rice Price dynamics in Bangladesh," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 14(1), pages 127-146, February.
    24. Jane Lankes & Mary K. Shenk & Mary C. Towner & Nurul Alam, 2022. "Dowry Inflation: Perception or Reality?," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 41(4), pages 1641-1672, August.
    25. Toufique, Kazi Ali, 2017. "Bangladesh Experience in Rural Development: The Success and Failure of the Various Models Used," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 40(1-2), pages 97-118, March-Jun.

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