Ensuring fair wages while keeping Bangladesh’s RMG sector competitive

The demand for a minimum wage increase to Tk24,000 (around $200) in Bangladesh's ready-made garments (RMG) industry isn't new. Workers first raised this demand in 2022, followed by waves of protests in 2023 and 2024. Now, the issue has resurfaced, and for good reason.

With inflation soaring, the cost of living—especially for essentials like food, housing, and healthcare—has shot up. Even with recent wage hikes, many RMG workers are still struggling to make ends meet. Their frustration is understandable.

But doubling wages overnight isn't a simple fix. It could make Bangladesh less competitive in the global market, leading to job losses, business closures, and reduced investment in the sector. The challenge is finding a way to improve workers' livelihoods without causing unintended economic shocks. 

A better path forward is a structured and predictable wage increase, ensuring workers' long-term welfare while keeping Bangladesh's RMG industry stable and competitive. 

Bangladesh's ready-made garment (RMG) sector has long been the backbone of its economy, employing over four million workers and accounting for around 84% of total exports. 

The global apparel industry is extremely price-sensitive, with buyers always looking for the most cost-effective production hubs. If wages in Bangladesh jump from $113 to $200 without a phased increase, the cost of goods—known as free-on-board (FOB) prices—would jump by at least 16%.

While wage growth is necessary to improve workers' living standards, history suggests that abrupt changes can destabilise the sector. Past wage hikes have resulted in increased costs for manufacturers, but international buyers have only adjusted their prices marginally, putting immense pressure on factory margins. 

The most recent 65% wage hike led to a minimum 6% increase in FOB (free-on-board) costs, whereas buyers only increased their prices between 1-3%. This created a situation where factories had to absorb the remaining costs, severely impacting profitability.

Faisal Samad, former senior vice president and board member of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said, "The minimum wage for RMG workers was increased by 55% in 2024, followed by an additional 10% in 2025, bringing the wage to $113. This represents a 65% rise in just over a year." 

A global perspective: Wages and competitiveness

Bangladesh's RMG wages are currently on par with those of key competitors such as Pakistan ($115), Egypt ($118), and India ($118). A sudden rise to $200 would place Bangladesh among the highest-paying RMG-producing nations, surpassing Vietnam (Region 4: $135, Region 3: $152) and nearing the levels of Indonesia ($170–204) and Cambodia ($204). The implications of this shift cannot be overlooked.

The global apparel industry is extremely price-sensitive, with buyers always looking for the most cost-effective production hubs. If wages in Bangladesh jump from $113 to $200 without a phased increase, the cost of goods—known as free-on-board (FOB) prices—would jump by at least 16%. 

However, past trends show that buyers would only be willing to adjust their prices by around 8% at most. This means factories would have to absorb the extra costs, squeezing profit margins and potentially forcing some to shut down.

Bangladesh has remained competitive largely due to its lower production costs. If wages rise too sharply, international brands might start sourcing from countries like Ethiopia ($25), Madagascar ($56), Myanmar ($71), and Sri Lanka ($72), where labour costs are significantly lower. 

Many of these countries are already improving their production capacity and supply chains. If Bangladesh loses too many orders, it may struggle to win them back.

The troubles of a sudden doubling of minimum wage 

A drastic wage hike poses several risks for Bangladesh's RMG industry, affecting both businesses and workers in the long run.

Loss of competitive advantage: With an increase to $200, Bangladesh's wages would surpass those of many competing nations, making it a less attractive sourcing destination. Countries like Ethiopia ($25), Madagascar ($56), Myanmar ($71), and Sri Lanka ($72) offer much lower wages, and international buyers may shift their orders there.

Factory closures and job losses: Many small- and medium-sized garment factories operate on thin margins. A sharp increase in wages without corresponding price adjustments from buyers will push these factories towards closure, leading to mass layoffs.

Faisal Samad said, "Many factories are closing. Our membership has decreased significantly. These are signs that we are losing our competitive advantage. Our export may be increasing, but it will not be sustainable at this rate." 

Irreversible business relocation: Once buyers move to other manufacturing hubs, they are unlikely to return even if Bangladesh later readjusts its wage policy. Other RMG-producing nations such as Vietnam, Indonesia, and India have been strengthening their infrastructure to attract global brands, making relocation a one-way shift.

Faisal Samad pointed it out as well, "India is aggressively competing with us. Their government is providing more incentives now. It is just an example that other countries are eyeing our position in the global market." 

Corruption and other hidden costs: In Bangladesh, doing business comes with a high price, largely due to corruption and hidden costs. Manufacturers often rely on wages to stay competitive. Research from the Centre for Policy Dialogue (CPD) highlights corruption as the biggest hurdle for businesses in the country.

If wages are doubled without addressing corruption first, it could spell disaster for the industry. The issue isn't just about higher wages; it's about tackling corruption to create a more sustainable environment for growth.

Alternative approaches

Instead of an abrupt increase, a phased and predictable wage hike would allow manufacturers to adapt while keeping Bangladesh competitive. Wage adjustments should be linked to productivity growth and inflation to ensure sustainability. 

This approach would also incentivise manufacturers to invest in worker training and automation, leading to higher efficiency and better long-term wage prospects.

Senior Vice President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and Team Group Managing Director Abdullah Hil Rakib said, "We need a national wage policy to fix the minimum wage for all sectors. Thinking about only one sector will not solve the overall problem. The RMG sector has better affordability, and we hope that the government will take everything into account to ensure the growth of the industry."

"For the last six months, we have been facing various issues," he added, "The sector is still not stable. Now is not the time for a sudden wage hike." 

Faisal Samad also agreed with him, "Increments may be needed, but we just can't afford it now. The industry needs more time to recover losses from the last six months and the current unstable situation." 

Beyond just wages, improving social protection measures can make a real difference in workers' lives without shaking the foundations of the industry. Instead of an abrupt wage hike, the government and industry leaders should focus on providing subsidised healthcare, housing, and education for garment workers. These measures would ease financial pressures while keeping wages competitive in the global market.

Bangladesh can also learn from other countries that have balanced wage growth with industry stability. Take Vietnam, for example—there, wage increases come with productivity-based incentives and government-backed worker benefits, which help manufacturers absorb the costs. A similar approach here would allow for sustainable wage growth without disrupting the industry.

As Abdullah Hil Rakib put it, "We are moving forward with cutting-edge technology, and our productivity is increasing. We need policy support from the government to keep up with our competitors."

At the same time, RMG manufacturers should actively engage with international buyers to negotiate fairer pricing structures. Buyers need to take responsibility for ethical wage adjustments through transparent sourcing agreements, so factory owners aren't left to shoulder all the costs.

The RMG sector must find a middle ground between worker welfare and economic realities. A sudden doubling of wages could lead to factory closures, job losses, and a loss of Bangladesh's competitive edge. 

A smarter solution would be a gradual wage increase, tied to productivity, combined with stronger social benefits. That way, workers genuinely see improvements in their lives—without putting the industry's future at risk. Sustainable growth, not short-term fixes, should be the priority.