Employment Relations of Bangladesh

BA 402 - Comparative Industrial Relations

Instructor: Lyman A. Hussey

March 2007

Employment Relations of

Bangladesh

by

Roman Walker

Index:                                                                       Page:

Overview…………………………………………………..3

Labour and Unions……………………………………….3

Economy…………………………………………………..4

Education System………………………………………...5

Legal System………………………………………………6

Labour Laws……………………………………………….7

Tax Structure………………………………………………8

Treatment of Foreign Nationals………………………….9

Grameen Bank……………………………………………10

Overview:

Bangladesh is a small country, located North-East of India, which surrounds it. Bangladesh borders India in the West, North, and East. It also borders to Burma in the South-East and its South coast is located at the Indian Ocean. Bangladesh is 130,200 km² big and has a population of 123,633 million people (2000). The capital of Bangladesh is Dhaka.

The majority of Bangladesh’s countryside is lowland at the bottom end of the Ganga and Brahmputra. Mountains can only be found in the East and South-East of the country. The climate is subtropical to tropical Monsun-climate.

98% of the population are Bengals. The other minorities are Bihari and some mountain tribes. Bangladesh is one of the thickest populated countries in the world which can hardly cope with the annual economical and social growth of 3%. The state religion is Islam.[1]        

Labour and Unions:

The labour force in 1998 was estimated at about 64 million workers. 11% of the civilian labour force was employed in the industrial sector, 63% in agriculture, 26% in the service industry in 1996. It is not possible to rely on statistics because of a huge unreported black market. The unemployment rate in 2001 was at about 35%.[2]

The structure of the labour market and the role of unions in Bangladesh are can be compared to those in other South Asia countries. Bangladesh has three types of labour markets: formal, rural informal, and urban informal. The formal labour market is characterized by a contractual relationship between the employer and the employee and supported by labour laws and regulations that protect workers, such as minimum wages, allowances, and limitations on the employer’s ability to fire his workers. The other types of labour markets are not covered by any labour regulations. The informal sector dominates the labour market surface. In 1991, 47,2 % of the labour force were classified as unpaid family workers, 15,4% were self-employed, 13,9% were classified as casual workers (day labourers), and only 11,7% had regular full time wage employment.[3]

Joining unions is granted by the Bangladesh’s constitution, as well as the formation of a union only after a government approval. Still in some cases people are harassed and fired who tried to organize a union. People working in the government civil servants, military, and police are not allowed to join unions with the exception of railway, postal, and telegraph workers. Instead they are allowed to join associations which perform similar functions like the unions. Workers of the EPZ (Export Processing Zone), ruled by the Bangladesh Export Processing Zones Authority, an official organ of the government to promote, attract, and facilitate foreign investment in these zones, primary formed to provide special areas where potential investors would find a congenial investment climate, free from cumbersome procedures[4], are not allowed to form unions, although the government promised to relax this restriction in 1997.

Although the size of the formal sector is so small, Bangladesh has a large number of labour unions. In 1992 there were 4065 registered unions with a total membership of 1.648.783, which are only 3% of the labour force. The unions are organized in 700 union federations, which are very active. They entered into agreements with the government in 1984, 1991, and 1992 to raise legislation labour benefits and protections, whereby the government provided a high protection to the domestic industries, like textiles, soap and detergents, iron and steel. There is also a strong resistance to trade liberalization in Bangladesh, mostly from the labour unions.[5]

There is a strong connection between unions and political parties. Almost all unions are affiliated with a political party. Of course you will also find unions that are militant and do engage in intimidation and vandalism, lost production, and transportation delays causing missed shipping dates for exports. Also battles occur between members of rival unions regularly.[6]

There are no special regulations in the Bangladesh law to ban discrimination by employer against union members and organizers. Usually private sector employers do not like any union activity and sometimes even work in collaboration with the local police. The Registrar of Trade Unions tries to come against such activities but is often not powerful enough to do anything.[7]

Economy:

Bangladesh improved its economic sector enormously since its independence in 1971. It is world-famous for his largest and comprehensive garments industry. The first years after Bangladesh’s independence the economy was characterized by its large jute industry but were overtook by polypropylene products soon.

The biggest part of the GDP belongs to service sector, followed by the industry and agriculture. Bangladesh’s main produced commodities are jute manufacturing, cotton textiles, garments, tea processing, paper newsprint, cement, chemicals, light engineering, sugar, food processing, steel, and fertilizer.

Soon after independence Bangladesh had a peak economic growth of 57%. Later the economic growth decreased to 29% in the Eighties and 24% in the Nineties.

The rising population forced Bangladesh to increase its food outcome. It became the third largest rice producing country in the world. Also wheat production increased in recent years, but nevertheless the country faces serious nutrition risk of 10% to 15% of the population. Bangladesh’s agriculture is dependant on the monsoonal cycle and still faces problems in power supply throughout the country, which has large reserves of natural resources like gas, as well as some limited like coal and oil.

Since Bangladesh’s independence the country received about $30 billion in aid and loans from foreign donors, including the World Bank, Asian Development Bank, UN Development Programme, the US, Japan, Saudi Arabia, and West European countries. But the poverty level of Bangladesh is still high: 138 million people live beneath the poverty line, which is the highest amount of poverty in South Asia.  There is also lack in quality of the social service in the country.

The major problems still remain, although improvements have been made by the government: inefficiency of state-owned enterprises, a rapidly growing labour force that cannot be absorbed by agriculture, inefficient power supply, and slow implementation of economic reforms. Nevertheless, the situation for foreign investors and the liberalization of the capital market changed positively, as well as agreements with foreign companies to export oil and gas, better distribution of cooking gas within Bangladesh, building of pipelines and power stations. Foreign aid also declines, exports rise ($10.5 billion in 2005) and investments increase.

To summarize the current economic situation: The GDP was $275 billion in 2004, the GDP-real growth rate was 5.2% in 2005, GDP-per capita was $2,000 in 2004, and aid-per capita was $10.1 in 2003.

The compositions by sectors of the GDP of 2004 are 20.5% by agriculture, 26.7% by industry, and 52.8% by services. The inflation rate of consumer prices was at 5.8% in 2000. The unemployment rate was at 3.6% in 2002.

Exports with the amount of $6.6 billion (2001) went at 31.8% to the United States, 10.9% to Germany, 7.9% to United Kingdom, 5.2% to France, 5.2% to the Netherlands, and 4.42% to Italy. Exports grew by 21.63% 2006. Imports with the amount of $8.7 billion (2001) came from India (10.5%), European Union (9.5%), Japan (9.5%), Singapore (8.5%), and China (7.4%).  Imports grew by 12.05% last year. Foreign Direct Investment was at $800 million in 2005.[8]    

Education System:

During the Nineties the Bangladesh’s government noticed that investments into the education system result in better future economic performance of the country. Therefore highest allocations in the national budget were made with topmost priority to human resource development, by implementing the “Education for All” –program in the country. Compulsory primary education, free education for girls up to class ten, stipends for female students, food-for educational total literacy movement and nationwide integrated education are some of the major programs imposed by the government in the education sector. 

The education system is divided into four levels. Children start at a primary school until grade five and go to the secondary school (from grades six to ten) afterwards. Higher secondary school takes from grade eleven to twelve, followed by tertiary schools. English medium education is also provided by some private enterprises, that offer “A”- and “O” level courses. An Arabic medium Islam-based education is offered by the Madrasa system for boys and girls, supervised by the Madrasa Board of Bangladesh. Hindus and Buddhists can go for religious education in the institutes “Tol” and “Chatuspathi”.   

There are 11 government universities and about 20 private ones in Bangladesh. The Bangladesh University of Engineering and Technology, the Bangladesh Agricultural University, and the Bangabandhu Shaikh Mujib Medical University are the specialized ones. All in all Bangladesh’s education system consist of four engineering colleges, 2845 colleges and institutes, 12553 secondary schools, and 78595 primary schools.

An open university has been brought up in Bangladesh to ensure higher education accessible for all.[9]

Still the literacy rate of Bangladesh remains low, with a high difference between male and female literacy rates. But the rate increases since government and NGO’s are involved in the restructuring of the education system. In 1998 Bangladesh won the UNESCO International Literacy Prize for its steadily increasing rate.[10]

Legal System:

Bangladesh’s legal system, which is based on the English common law, can be compared to those of neighbouring countries. Although law is based on the English system, you will also find codes of civil and criminal laws in it. These are established for some Hindu and Islamic religious principles for marriage, inheritance, and other purposes.

The constitution, which is the fundamental law of the country, was founded in 1972, one year after Bangladesh’s independence. In 1982 the constitution was suspended and reinstated in 1986.

The system itself consists of a Low Court and a Supreme Court, which hear both – civil and criminal cases. The Low Court is built up of administrative courts and session judges. The Supreme Court is built up of a High Court, whose task it to hear original cases and review decisions of the Low Court, and an Appellate Court which hears appeals from the High Court. The trials are public, the right to counsel and appeal is present, and a system of bail also exists. Recently upper level court, that have exercised independent judgement, argue against the government on a few cases in criminal, civil, and political trials. The most significant problem of Bangladesh’s law system is the backlog of cases.

The World Bank helped Bangladesh’s government to enforce a huge project to reforn the legal system, to make it more efficient and accountable. So called “Legal Aid Committees” were established to assist the poor. Also Metropolitan Courts of Session were created. Today, there is also a Law Commission to reform and update existing laws, and a Human Rights Commission.[11]   

Labour Laws:

Despite the problems Bangladesh has with its legal system, well structured labour laws were established to protect workers from exploitation.

The regular workweek is 48 hours long, divided into an eight-hours day, six days a week. Overtime must be voluntary and should not exceed 12 hours a week, making a 60-hour workweek. Another fact is that overtime must be paid at a double the standard salary. Women are not allowed to work night shifts or after 8 p.m. The labour law also states that there must be one rest day off per week. Usually these days are Fridays or Sundays.

A country-wide minimum wage is set at $8 cents an hour. The minimum wages within an Export Processing Zone are set at $22 cents an hour for a sewer and $18 cents an hour for a helper. The EPZ provides numerous other benefits for its workers like rent subsidy, transportation subsidy, medical allowance, religious festival bonus, and a 17 days vacation.

The labour law also set legal benefits for workers, such as 14 days for sickness a year with a full year salary, ten personal leisure time days a year that are paid, ten religious festival holidays with a full pay, and three months’ full paid maternity leave. A company with more that 50 employees is also required to have a day-care centre.

In terms of healthcare factories with more than 500 workers are required to have a healthcare clinic and be dispensary staffed by a doctor and/ or a nurse. Any kind and all forms of physical punishment are outlawed and punishable by the state law.

When a worker wants to legally leave a factory, the employer is required to pay a severance of 5000 taka, which is about $87.11 for each year worked in the factory by the worker. 

The right to organized and bargain collectively are legal right stated by Bangladesh’s constitution and labour law with the exception of Export Processing Zones, where these laws do not apply.[12]

Although there are rights set by the government, they are hardly enforceable and rarely controlled by the state institutions. Public sector wages are set by the National Pay and Wages Commission and may not be disputed. Although, there are minimum wages set by the government for the private sector, in real they are still ruled and set by the industry. Collective bargaining rarely occurs, because high unemployment exists and employees are afraid of loosing their jobs. And although the legal workweek is set to 48 hours with one day off, this law is rarely enforced, especially in the garment industry. Children under the age of 14 are not allowed to work in factories, but may work under certain circumstances in other industry sectors. Still such restrictions are neglected by employers and you will find children working in every sector of the economy.  In 2002, the government estimated that 6.6 million children between the ages of five and 14 years were engaged in all types of employment activities, many that were harmful to their well-being.[13]

 Tax Structure:

A Bangladesh resident is considered to be a person who spends 182 days within the country in an income year. In case a person has been in the country for 90 days in the income year and 365 days in four years - preceding this year, this person will also be considered a resident.[14]

Total taxes in Bangladesh are divided into direct and indirect taxes. Direct taxes in Bangladesh consists of taxes on income (income tax, corporation tax, agricultural income tax) and taxes on property (wealth tax, gift tax, estate duty, capital gains tax, urban property tax, house rent, land revenue, registration, and non-judicial stamp). Taxpayers in Bangladesh can be categorized into three main groups. The elite group consists of corporate taxpayers (24,770) that make up about 3.02% of the total taxpayers. The next group consists of wage earners or salaried taxpayers (154,245), who shares about 18.81%. The largest and the last group consists of all other remaining taxpayers, mainly those who have an income from business and profession (640,795) that make up about 78.17%.

Personal income taxes are unevenly distributed among the registered taxpayers. In reality a major portion of taxes is paid by small group of people with higher marginal rates. A high number of registered taxpayers always remain in lower income groups, for whom it is easy to receive tax incentives or tax exemptions and who share only a little burden of taxes, often at lower marginal rates. These taxpayers are often small and medium traders and manufactures. There are also a lot of untaxed investments because of tax amnesty.[15]

Personal Income Tax Bangladesh 2002[16]

As one can see the maximum personal taxation is 25%.

On the company level a business pays 15% tax of total income or 100,000 taka whichever is less. Small and cottage industries receive a tax rebate of 5% to 10% depending on the income and production volume. There is no tax obligation for a firm on the first earned 60,000 taka, 10% on the next 40,000 taka, 15% on the next 50,000 taka, and 20% on the next 150,000 taka of the total income. All in all there is 25% tax on the balance of total income. Corporate tax rates for industrial companies whose shares are publicly traded are 35% and the rate of those whose shares are not publicly traded is 40%. Banks, financial institutions, insurance companies, and local authorities pay 45% income taxes.[17]

Treatment of Foreign Nationals:

The number of foreign nationals seeking work permits in the Board of Investment increased manifold recently after the caretaker government implemented measures against overstay of foreigners in Bangladesh. Although there are regulations many foreigners enter the country under tourist visas and leave the country without taxes after working in the computer industries and taking the advantage of inadequate measures to check the malpractices by the previous governments. Therefore the government implemented expensive work permits fees or work permit renewal fees. The government fee for issuing a work permit, as well as its renewal for one year is 5.000 taka.

Foreigners in Bangladesh usually work in high technology-oriented industries. Foreign nationals coming from India, Thailand, the Philippines, Myanmar, and China stay in Bangladesh for a long period of time for working purposes. The government has no specific statistics on how many foreign nationals work in the country without having a valid work permit or staying there illegally. Analysts believe that there are about 0.1 million to over 0.2 million foreigners staying in the country illegally. A regulation states that a foreign national staying in Bangladesh illegally for more than 36 days will have to pay a penalty of 5.000 taka. The new guidelines also dictate that any foreign national who wants to stay here for more than 30 days has to register with the Special Branch of police. A foreigner has to pay a fine of 500 taka per day if he or she overstays here for up to 15 days, 1.000 taka a day for 16 to 26 days, and 2.000 taka for 26 to 37 days. The new guidelines have relaxed the visa requirements for the Bangladeshi Diaspora and their Bangladeshi or foreigner wives.

Earlier, on the eve of SAARC summit in Dhaka, the immediate past 4-party alliance government ordered a crackdown on the foreigners staying in Bangladesh illegally. Some 'suspicious' foreign nationals were identified and asked to leave the country. The suspected people included some Pakistani, Libyan and Indian nationals. In fact, the decision to deport the foreigners came two days after the deadly bomb attack in the Indian capital of New Delhi and the government has started revising security arrangements for the two-day summit, which was attended by the heads of states of seven south Asia countries.