Labor Market Dynamics, Inflation and Wage Adjustments in Bangladesh

This chapter examines the dynamics of inflation and wage adjustments in the labor market of Bangladesh, especially keeping in view the rising food inflation in recent years. The analysis shows that the daily wage laborers in both agriculture and non-agriculture sectors, who constitute the largest poor group in the country, are usually able to protect the level of their daily real wage in the face of rising inflation through upward adjustment in the nominal wage rate without any substantial time lag. A similar behavior is also noticed in the informal labor markets that set the daily wage rates in construction, services, transport (including rickshaw pulling) and other low-paid activities in which the poor are the major participants. The poor day laborers in Bangladesh have some ability to at least partially revise their nominal wage income rather quickly to compensate for the loss in real income due to inflation. On the other hand, the self-employed category and salaried poor households, are more likely to be negatively affected since their real income is eroded by rising inflation while they pay higher prices for purchased goods. The remaining major poor group comprising nearly 10 percent of the poor households in both rural and urban areas belongs to unemployed/not working category households and these households, no doubt, become extremely disadvantaged with rising inflation.