Minimum wage war in Myanmar

Factory owners are under pressure to raise worker wages but any dramatic rise could discourage foreign brands from investing in the low-cost nation

When Myanmar passed its first minimum wage in September 2015, the legislation was widely hailed as a landmark achievement for labor rights and clear sign the country was firmly on the path to democracy.

A year and a half later, the minimum wage is up for review at a time spiraling inflation and rising costs of living have pushed Myanmar’s low-wage laborers back on to the picket lines demanding a better deal.

Myanmar’s nascent manufacturing industry is still emerging compared to more industrialized competitors in the region.

Under military rule, Western sanctions bled the sector nearly dry; well into the 2000s, the anemic manufacturing industry had few global trading partners and little incentive to comply with evolving international quality and labor standards.

Even as neighboring countries started to adopt safety protocols and wage floors to spur more international investment, Myanmar continued to bar trade unions under heavy-handed, anti-democratic military rule.

Then, workers’ base pay was as little as 15-20 kyat per day, equivalent to just one or two US cents, supplemented by a convoluted system of benefits and incentives, such as free meals and transportation, and bonuses for attendance and overtime.

That system, according to a report by rights research and monitoring group Progressive Voice, “gave workers little choice but to work long hours with no recourse” to secure a living wage.

Workers’ fortunes began to change in 2011-2012 when then President Thein Sein’s administration targeted low and unskilled manufacturing – primarily textiles – as a key sector for attracting foreign investment and powering economic growth.

The industry began an exponential expansion, where export revenues nearly tripling between 2010 and 2014, much of it on the back of growing trade with the European Union (EU). Garments accounted for 10% of Myanmar’s total export revenues in 2015.

In no small part to assuage international brands’ labor rights concerns, the government legalized trade unions in 2011-12 and passed the Minimum Wage Law in 2013.

The law paved the way for negotiations over the first wage threshold to begin, but two years and little progress later, workers began to strike, demanding better pay and more humane working conditions.

The eventually agreed 3,600 kyat (US$2.64) daily wage, a compromise between the trade unions’ proposal of 4,000 kyat (US$3) and factory owners’ counter of 2,500 kyat (US$1.88), drew fire from both sides. But analysts at the time suggested that the mutual backlash was testament to a well-negotiated deal.

“If workers complain that it’s too low, and factories complain that it’s too high, and both sides are genuine, that’s normally decent evidence that they achieved a successful compromise,” said Jacob Clere, team leader at SMART Myanmar, an EU-funded garment industry advisory body.

Moreover, the agreement was largely upheld. Progressive Voice found that 99% of factory workers it interviewed reported they received the new minimum wage three months after it was passed, a huge divergence from neighbors such as Thailand, where labor and wage regulations are routinely flouted.

But Myanmar’s minimum wage was not a panacea for workers. The wage floor is still the second lowest rate in Southeast Asia, trailing only Bangladesh.

Progressive Voice also noted that 61% of workers it interviewed felt that the wage had a sum-negative effect, leading to a deterioration of workplace conditions and increased pressure to fulfill quotas.

While only one factory closed outright, thousands of workers were laid off in mass-firings after the wage went into effect on September 1, 2015. The system of bonuses and incentives also disappeared overnight.

While a mandated wage shifted some power to workers by preventing employers from docking pay for tardiness, it also meant factories no longer offered the opportunity to earn extra bonus-based pay or benefits, such as transportation, which many workers relied on.

The minimum wage even resulted in a net pay cut for some workers. Alex Moodie, research officer at Progressive Voice, said some factory owners “circumnavigate the provisions in the law” by signing workers at an “intern” rate of 1,800 kyat (US$1.35) per day, followed by a “probationary” rate of 2,700 kyat (US$2.03), and then fire and rehire them on the same entry-level contracts.

Senior and skilled workers who had accrued salary boosts over time saw their pay cut as factory owners interpreted the new wage floor as a “one-size-fits-all” rate.

Production quotas remained the same or increased, Moodie said, as factory owners, under the pressure of razor-thin profit margins resorted to harassment and intimidation to “squeeze every last drop of productivity, every last drop of effort out of [workers] in order to meet production targets.”

At the same time, inflation climbed 10.7% from 2015-2016 while the kyat slumped, effectively slashing workers’ daily pay in dollar terms to $2.64 from the $2.83 it was worth when the minimum wage was first instituted.

Commodity prices also soared following nationwide flooding in April 2015: the cost of food, particularly staples such as rice, oil, and onions, jumped 10% between June 2015 and July 2016, according to Myanmar’s Central Statistical Organization.

Because of those economic headwinds, “workers struggle to make ends meet just as they did in the years before the minimum wage was implemented,” the Progressive Voice report noted.

By November last year, factory workers had again taken up protest signs, calling for the minimum wage to be raised to 5,600 kyat (US$4.20), a requested increase of 56%. Labor unions specifically cited inflation and the rising cost of housing in Hlaing Tharyar, the largest of Yangon’s industrial zones, in demanding the higher wage.

At the end of February, a second National Minimum Wage Committee was formed with an eye toward not only raising the wage threshold, but also instituting a more sophisticated, tiered system.

Analysts have also proposed solutions such as indexing the wage against inflation, or introducing a rate that varies by regional cost of living, as is the case in Vietnam.

Khin Maung Nyo, an economist and committee member, told local media in February, “The new wages will be more specific.”

“The previous minimum wage was the same for all levels,” he said. “We want workers to earn reasonable wages without burdening employers. We are trying to take care of all parties.”

The committee, which is composed of economists, ministry officials and representatives from industry groups and labor unions, is expected to make its recommendation in September. But if its predecessor is any guide, negotiations could stretch on longer.

The prospect of another wage hike has garment bosses nervous, according to Khin Maung Oo, labor officer at the Myanmar Garment Manufacturers Association (MGMA).

“Some labor unions’ proposed an amount, 5,600 [kyat per day], that may be higher than [the factories] can afford. So that is why there is some concern in the community,” he said.

Factory owners have already shown willingness to lift the minimum wage, counter-offering 5,000 kyat (US$3.76) per day, a 39% increase over the current rate.

They have ample incentive to move quickly: another two years of work-stopping demonstrations would give international brands pause about opening or expanding operations in Myanmar.

On June 19, more than 1,000 workers at a Chinese-owned factory in Hlaing Tharyar demonstrated for higher wages and cleaner working conditions, and that employers respect overtime payments, the Myanmar Times reported.

Myanmar labor law mandates double-pay for overtime, as opposed to the regional standard of one-and-a-half, which discourages employers from letting workers take on extra hours.

Clere warned that any dramatic increase of 150% above the current rate or higher could send a “chilling signal” to foreign brands and investors considering establishing new factories in Myanmar.

“This is a globally competitive, labor-intensive industry which, unfortunately, is always seeking out low wage production countries in order to maximize what are often times slim profit margins,” he said.

A February 2017 report from the Netherlands’ Stichting Onderzoek Multinationale Ondernemingen (SOMO) called for a Southeast Asia-wide wage floor “to stop the garment industry’s wage race to the bottom.”

Raising Myanmar’s wage floor would be consistent with economic trends across the region. Cambodia will open talks to renegotiate its minimum wage, last set at US$135 per month in 2014, on July 1, and there have been suggestions to introduce a nationwide minimum wage in India.

While Myanmar has already attracted major global brands such as Gap Inc, H&M, and Adidas, its ability to keep such production clients in a cutthroat global market is threatened by a shortage of skilled labor to support more sophisticated production techniques.

According to MGMA president Myint Soe, sub-standard productivity is an even greater concern for brands and manufacturers than shelling out higher wages in Myanmar.

“[Factory owners] aren’t afraid of the wage increasing, because for international brands, the minimum wage is based on productivity. If the productivity is good, brands will be happy, and all the workers will be able to earn more than the minimum wage,” he told Asia Times.

Analysts and labor advocates have cautioned that simply raising the wage threshold without addressing other concerns won’t prevent production quotas or housing prices from continuing to rise. Worse, an incomplete wage deal may serve to further inflame conflicts between labor interests and manufacturers.

It’s a vicious pattern in Cambodia and Bangladesh, where long-simmering tensions between the government and a large population of low-wage garment laborers has sparked bouts of violence.

For MGMA to meet its ambitious export target of US$8-US$10 billion by 2024, a five to six-fold increase from the US$1.64 billion in earnings last year, the industry will not only need to pursue a breakneck pace of expansion, but also must work with the government to promote a healthier business climate.

Myanmar’s manufacturing potential may have piqued investor interest, but poor infrastructure, costly transportation, insufficient power supply, endemic corruption and an unreliable legal landscape conspire against a welcoming business environment.

Myanmar ranked 170 out of 190 countries on the World Bank’s annual Ease of Doing Business survey in 2017; only Timor-Leste scored lower in the region. If onerous operational costs aren’t offset by increases in productivity or other incentives, foreign investors won’t hesitate to take their business elsewhere once Myanmar’s novelty wears off, analysts say.

At an April 25 meeting with Yangon Region Chief Minister U Phyo Min Thein, Hlaing Tharyar factory owners noted even the most basic improvements could go a long way toward making business easier.

They complained about high local bridge tolls, which some said were as costly as transit from Yangon to Singapore. Tired of feeding expensive back-up power generators during frequent blackouts, factory owners also reportedly offered to finance a new 50-megawatt power station.

“It’s great that the minimum wage will increase. It should and it must, but the government needs to also be thinking how they can create more business-friendly policies, via better electricity distribution, via improving road infrastructure, via clamping down on corruption – things like this,” Clere said.

“Investors aren’t going to keep setting up factories in Myanmar if only the burdens increase and the benefits don’t.”

Source : Asia Times

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