Impact of Compliance on

RMG Industry of Bangladesh

Monzur Hossain

Kazi Iqbal

Tahreen Tahrima Chowdhury

Collapse of Rana Plaza:

Deadly Incident in Garment Industry

• Collapse of Rana Plaza had been the deadliest incident revealing the underlying failure of

ensuring safety in workplace. On April 24 2013, the world trembled with the

horrible devastation when a concrete building known as “Rana Plaza” cracked,

buckled and ultimately collapsed atop the garment workers inside its factories

leaving over 1100 people dead and 2400 injured. Rana Plaza was an eight storied

commercial building near Dhaka, the capital of Bangladesh housing around five

clothing factories in addition to a bank, apartments and a few shops.

• The International Labour Organisation (ILO) calls on the government of

Bangladesh to demand liability from manufacturers and distributors. Clothing

brands and their international clients pledge to take responsibility for improving

working, health and safety conditions and allow independent inspections of

workplaces. ACCORD and ALLIANCE were formed with the exigency of

establishing safety and security in the garment factories of Bangladesh

Aftermath of Rana Plaza:

ACCORD, ALLIANCE and National Initiatives

• The Accord and the Alliance are the two coalitions which were established with

a five-year timeline for improving factory safety in Bangladesh. The Accord

consists of European brands whereas the Alliance made up of mostly American

fashion brands. Both had five-year deadlines that expired in 2018. The groups

have made a great deal of progress, fixing well over 80% of the issues they had

originally identified.

• The Accord has created a three-year extension to continue the remediation

work, and to allow its oversight to transition smoothly to a body set up by

Bangladesh’s government to carry on the work of remediating factories, called

the Remediation Coordination Cell (RCC). The Alliance’s tenure in Bangladesh

ended in 2018.

How did Accord work to ensure safety?

source: Extracted from Accord’s website

How did Alliance work to ensure safety?

source: Extracted from Alliance’s website

Objectives and scopes of the study

• The broader objective of the study is to examinethe impact of compliance measures onproductivity and performances of RMG firms inBangladesh.

• In particular, we assess the impact on output,output per worker, market access and crisisintensity

• Also to assess the perception of employeesregarding the impact of compliance measures onthe safety status at workplace

Literature Review

• There is debate as whether or not introducing improvements in workplace safety

can actually increase measurable economic benefits in terms of improved

performance of workers.

• According Lamm (2207), “while there are a growing number of studies indicating

the benefits of providing a healthy and safe working environment, the evidence is

still tenuous and difficult to quantify. In particular, it is not known if the benefits

are short-term or long-term. Also, while there is evidence that occupational injuries

and illnesses impact on productivity losses, it is not clear whether or not reducing

injuries and illnesses will automatically influence productivity gains. The literature

suggests, getting employers, particularly those operating in the small business

sector, to link health and safety measures with tangible increases in productivity

and profits could be difficult”.

• There are also few references that make the connection between OHS and the

sociology and organisation of work and productivity. . A few studies relating to

environmental regulation compliance found that such compliance measures reduced

firm productivity (Denison, 1979; Gray, 1987; Hitchens et al. (2005) show that

smaller firms are constrained to adopt environmental standards.

Literature Review (cont…)• However, some studies also find that environmental regulation costs improve firm

performance. Masakure et al. (2009) finds a positive relationship between exports

and ISO9000 standard certification. Umoh & Torbira (2013) found significant

relationship between employer’s compliance to safety rule and man hour put in by

employees in the production process.

• The effect of compliance standard measures on firms productivity yet to be

assessed in the context of Bangladesh. Bakht and Hossain (2016) finds that smaller

factories, particularly, those with less than 500 workers and factories located in

Dhaka district have been found to be, in general, less complaint, and so greater

attention with regard to monitoring and follow up should be directed towards these

factories. Nearly 50% of the factory buildings are shared with similar type of

factories and about 15% factory buildings are shared with other offices and

businesses, which render it difficult to maintain fully the safety standards

Methodology

• The study had been designed with a review of existing literature on safety

measures at workplace. Based on the research objectives, primary survey

had been conducted with random selection of 508 RMG factories from the

existing 3426 ( Bakht & Hossain, 2017) RMG factories across four districts

(Dhaka, Gazipur, Narayanganj and Chittagong) in Bangladesh.

• Among these 508 firms, 255 firms were selected with the criteria of

“adopting the compliance measures” suggested by any of the three

distinguished entities; ACCORD, ALLIANCE or National Initiatives

denoted as “Treatment Group. The rest of the 253 firms have been termed

as “Control Group” which were similar to the treatment group ex ante but

have never been member of ACCORD, ALLIANCE or National

Initiatives.

Methodology (cont..)• Defining Intervention Year: There is no definite year of intervention across

all firms as time of inception of remediation process differs across firms as

well as these remediation process remains continuous up to year 2018. For

each firm , the year where remediation was initiated had been considered as

“year of intervention” and the following years had also been considered as

intervention years . The rest of the years had been considered as pre-

intervention years. 75% of treatment firms initiated remediation process in

2014. So, for control group, 2014 and the following years had been

considered as “year of interventions”.

• The primary survey was intended to explore the probable impact of

compliance measures on firms’ production and operational outcomes. The

compliance measures have been categorized in three different indicators;

(i)Building Safety Measures (Building Construction, Means of Exit etc.),

(ii)Fire Safety Measures (Resistance against Fire and Protection from Fire)

and (iii)Electrical Safety Measures. Two types of survey had been

conducted :

Enterprise Survey

Workers’ Perception Survey

Methodology (cont..)

• Enterprise Survey:

Firms were asked to provide detailed information on safety measures

undertaken by firms from the year 2013 to 2018. The firms of treatment groups

reported all the actions and measures suggested by the compliance entities.

The firms belonging to the control groups were also asked to report any safety

measures undertaken through their own initiatives.

• Workers’ Perception Survey:

Apart from this enterprise survey, a perception survey was carried out through

interviewing three workers from each of the selected firms. Total 1500 workers

were asked about their perception on compliance measures undertaken by the

respective firms.

Methodology (cont..)

• Selection of Firms:

Stratified sampling has been followed to select 508 firms from 3496 firms based on

size of workforce and location of firms.

• Data Analyses:

Difference-in-difference method with OLS had been used to estimate the impact of

compliance measures on total output, labour productivity (output per worker), market

access of firms (defined by number of countries, number of companies , number of

products where and which firms exported from 2013 to 2018), crisis faced by firms

(number of labour unrest, number of accidents , number of injuries faced by firms from

2013 to 2018).

Size of firms, location of firms, proportion of cost spent on building safety, fire safety

& electrical safety , membership of BGMEA/BKMEA, type of ownership, domestic of

foreign management, ownership of building where firm is established, duration of firm

in the existing building have been used as control variables in regression.

Sample CharacteristicsDistribution of Sample of Treatment and Control Group across Area and Size

District

Treatment Control

n % n %

SM

AL

L

Dhaka 3 75 7 53.85

Narayanganj 1 25 2 15.38

Gazipur 0 2 15.38

Chittagong 0 2 15.38

others 0

Total 4 100 13 99.99

ME

DIU

M

Dhaka 110 62.86 94 42.53

Narayanganj 14 8 49 22.17

Gazipur 20 11.43 40 18.1

Chittagong 31 17.71 38 17.19

others 0 0

Total 175 100 221 99.99

LA

RG

E

Dhaka 55 72.37 12 63.16

Narayanganj 5 6.58 1 5.26

Gazipur 12 15.79 6 31.58

Chittagong 4 5.26

others

Total 76 100 19 100

Total (All size 255 253

Sample Characteristics (cont..)Distribution of Sample of Treatment

Group across Compliance

Association

n %

ACCORD 87 34.12

ALLIANCE 14 5.49

NATIONAL

INITIATIVE 94 36.86

ACCORD &

ALLIANCE 46 18.04

ACCORD &

NATIONAL

INITIATIVE 13 5.10

ALLIANCE &

NATIONAL

INITIATIVE 1 0.39

Total 255 100

Distribution of Sample of Treatment and

Control Group across BKMEA & BGMEA

membership

Treatment Control

n % n %

BGMEA 197 77.25 164 65.08

BKMEA 52 20.39 87 34.52

BGMEA &

BKMEA 6 2.35 1 0.4

Total 255 100 252 100

Sample Characteristics (cont..)

Category Treatment Control Total

Ownership type (%)

Single Ownership 50.98 53.36 52.17

Joint Ownership 20.39 20.16 20.28

Limited Company 28.63 26.09 27.36

Firm type (%)

Domestic 83.53 93.68 88.58

Foreign 10.59 3.95 7.28

Jointly Domestic & Foreign 5.88 2.37 4.13

Building ownership type (%)

Rental 57.65 74.70 66.14

Owned 42.35 25.30 33.86

Total number of firms 255 253 508

Duration of usage of current building by the

factory (months)136.79 115.83

Amount of outstanding loan 7446626 169923.5

Interest rate of last loan (%) 11.71 11.25

Sample Characteristics (cont..)Distribution of Workforce across gender from 2013 to 2018

Designation Gender 2013 2014 2015 2016 2017 2018 CAGR (%)

Treatment (%)

Admin officer and

Manager

Male 4.48 5.06 4.34 4.01 4.04 4.01 1.60

Female 0.75 0.78 0.77 0.71 0.79 0.76 4.21

ClerkMale 0.75 0.78 0.77 0.80 0.79 0.79 5.00

Female 1.01 0.97 1.16 1.07 1.23 1.33 9.66

Permanent workerMale 27.70 27.92 26.88 26.85 26.86 26.98 3.34

Female 53.51 51.46 51.64 49.15 49.16 48.40 1.82

Daily wage based workerMale 1.04 1.26 1.45 3.75 2.37 2.57 24.57

Female 3.83 5.06 5.30 5.17 5.35 5.57 11.93

Temporary workerMale 0.41 0.29 0.39 0.62 1.14 1.37 31.95

Female 0.10 0.10 0.58 1.25 1.40 1.63 80.20

ProbationerMale 0.65 0.78 0.96 1.07 1.14 1.03 14.01

Female 1.27 1.36 1.93 1.78 2.28 2.23 16.31

OthersMale 3.74 3.50 3.08 2.94 2.56 2.48 -4.30

Female 0.75 0.68 0.77 0.80 0.88 0.86 6.79

Total number of workers 965 1028 1038 1121 1139 1167 3.89

Control (%)

Admin officer and

Manager

Male 2.36 2.20 2.36 2.17 2.29 2.29 1.55

Female 0.58 0.59 0.69 0.54 0.67 0.64 4.16

ClerkMale 0.96 1.17 0.97 1.08 1.08 1.02 3.31

Female 0.71 0.73 0.69 0.68 0.81 0.76 3.71

Permanent workerMale 22.75 22.11 21.50 20.88 21.05 20.89 0.37

Female 39.43 40.26 39.25 37.69 37.52 36.56 0.57

Daily wage based workerMale 3.96 4.39 4.16 3.66 3.64 3.57 0.00

Female 2.40 2.49 2.36 5.15 5.40 5.48 20.39

Temporary workerMale 8.20 6.73 8.88 7.86 7.83 8.66 3.23

Female 14.70 14.93 15.40 15.32 14.44 14.71 2.12

ProbationerMale 1.27 1.46 1.25 1.56 1.89 1.48 5.21

Female 1.55 1.76 1.39 1.49 2.29 1.78 4.94

OthersMale 0.85 0.88 0.83 0.81 0.81 1.91 20.11

Female 0.28 0.29 0.28 1.08 0.27 0.25 0.00

Total number of workers 708 683 721 738 741 785 2.10

Sample Characteristics (cont..)

Export and rate of Profit(reported) across Size of Firms from 2013 to 2018

Size Variable2013 2014 2015 2016 2017 2018

CAGR

(%)

Treatment

SmallExport (mill. $) 1.05 1.05 1.10 1.35 1.35 1.35 5.15

Profit (%) 3.22 3.62 4.56 3.56 3.56 3.56 1.99

MediumExport (mill. $) 43.99 40.06 43.54 46.04 46.60 49.60 2.43

Profit (%) 8.27 7.81 7.87 7.90 8.09 8.26 -0.02

LargeExport (mill. $) 101.26 107.75 108.88 115.09 114.20 118.22 3.15

Profit (%) 9.80 9.71 8.80 9.14 9.71 10.72 1.82

Control

SmallExport (mill. $) 4.82 5.04 4.32 4.62 4.42 4.13 -3.05

Profit (%) 6.04 5.35 5.58 5.25 4.70 5.00 -3.71

MediumExport (mill. $) 20.25 19.51 18.99 19.87 21.02 20.85 0.58

Profit (%) 10.06 6.90 9.75 7.30 9.79 7.41 -5.93

LargeExport (mill. $) 17.53 17.81 18.09 18.96 19.04 19.34 1.99

Profit (%) 8.15 8.40 8.74 8.27 8.62 8.74 1.43

Sample Characteristics (cont..)

Comparative analysis of Total Costs incurred by firms

according to size (unit: Lakhs BDT)

Size 2013 2014 2015 2016 2017 2018CAGR

(%)

Treatment

Small 900.97 924.56 945.39 940.36 925.73 917.79 0.37

Medium 1534.98 1656.25 1823.03 1799.26 1874.30 1861.33 3.93

Large 7501.30 7941.91 8833.76 8661.98 8677.08 9311.23 4.42

Control

Small 356.01 408.79 368.26 366.13 368.90 332.03 -1.39

Medium 1096.45 1170.02 1154.48 1298.54 1519.29 1332.32 3.97

Large 16144.82 16777.53 16962.10 16627.20 16773.46 16816.88 0.82

Impact of Compliance measures on Firms’ Performance

• Impact of Compliance measures on firms’ performance had been assessed in

following dimensions:

Impact of Compliance on Total Output, Productivity

Impact of Compliance on Market Access of Firms

Impact of Compliance on Crisis Faced by Firms

Workers’ Perception on Building Safety, Fire Safety and Electrical Safety

Regression with Diff-in-Diff Estimates

Regression with Diff-in-Diff (time series data from 2013 to 2018)

Dependent Variables Control Variables

Impact of Compliance

on

Productivity

Total Output

Output Per Worker Size of firms,

location of firms,

proportion of cost spent on

building safety, fire safety &

electrical safety

membership of

BGMEA/BKMEA,

type of ownership,

domestic or foreign

management,

ownership of building where

firm is established,

duration of firm in the existing

building

Impact of Compliance

on Market Access of

Firms

number of countries where

firms export

number of companies where

firms export

number of products which

firms export

Impact of Compliance

on Crisis Faced by

Firms

number of labour unrest

number of accidents

number of injuries

Worker’s Perception

on Safety Measures

Workers stated 0 if no risk is

perceived, 1 if some risk is

perceived

Regression with Growth of Indicators

Regression with growth of indicators:

Growth of different indicators had been considered as dependent variable and

some attributes of firms had been considered as independent variables

Dependent Variables Control Variables

Impact on

Growth of

Productivity

Growth of Total Output

Growth of Output Per

Worker

Size of firms

location of firms,

membership of

BGMEA/BKMEA,

type of ownership,

domestic or foreign management,

ownership of building where firm

is established,

duration of firm in the existing

building

Impact on

Growth of

Market Access

of Firms

Growth of number of

countries where firms

export

Growth of number of

companies where firms

export

Growth of number of

products which firms

export

Impact of Compliance on Total Output, Productivity

Impact of Compliance on Total Output, Productivity and Profit

VARIABLES log_output_total log_output_per_worker

treatment _dummy 0.368*** 0.132

(0.109) (0.101)

time_dummy 0.065 0.043

(0.075) (0.071)

treatment _dummy* time_dummy 0.014 0.022

(0.115) (0.109)

firm_size 0.001*** -0.000

(0.000) (0.000)

building_safety_cost_percent 5.000 4.840

(4.133) (3.900)

fire_safety_cost_percent -2.446* -2.222*

(1.383) (1.294)

electrical_safety_cost_percent -3.722 -3.304

(9.824) (8.922)

Observations 2,861 2,859

R-squared 0.290 0.186

Impact on Growth of Output, Productivity

Impact on Growth of Output, Productivity

VARIABLES growth_output growth_output_per_worker

treatment _dummy 0.123*** 0.008

(0.042) (0.047)

firm_size -0.000** -0.000

(0.000) (0.000)

(0.000) (0.000)

Constant 0.173*** 0.015

(0.045) (0.056)

Observations 458 478

R-squared 0.057 0.046

Impact on Market Access

Impact on Market Access

VARIABLES country_no company_no product_no

treatment _dummy 1.152*** 1.493*** 0.498*

(0.183) (0.245) (0.276)

time_dummy 0.088 0.052 -0.153

(0.120) (0.141) (0.201)

treatment _dummy* time_dummy -0.227 0.000 0.316

(0.207) (0.287) (0.326)

firm_size 0.000*** 0.000*** 0.000

(0.000) (0.000) (0.000)

building_safety_cost_percent -26.341*** -8.925*** 2.469

(6.906) (2.605) (2.735)

fire_safety_cost_percent 6.289** -0.950 0.139

(2.853) (1.595) (0.707)

electrical_safety_cost_percent 26.208*** 7.967** -5.271*

(8.500) (3.495) (2.899)

Observations 2,448 2,421 2,458

R-squared 0.144 0.132 0.052

Impact on Growth of Market Access

Impact on Growth of Market Access

VARIABLES growth_country growth _company growth

_product

treatment _dummy -0.362 0.258 0.516

(0.482) (0.989) (0.546)

firm_size -0.000** -0.000 0.000

(0.000) (0.000) (0.000)

Constant 0.949 0.977 0.628

(0.608) (1.350) (0.711)

Observations 103 81 51

R-squared 0.109 0.098 0.205

Impact on Crisis

Impact on CrisisVARIABLES labour_unrest_no accident_no injury_no

treatment _dummy -0.334** 0.028 -1.645

(0.154) (0.193) (1.820)

time_dummy -0.489*** -0.218** 0.107

(0.092) (0.088) (0.814)

treatment _dummy* time_dummy 0.300 -0.209 4.076*

(0.222) (0.245) (2.378)

firm_size 0.000 0.000 0.001

(0.000) (0.000) (0.002)

building_safety_cost_percent -0.048 -19.029*** -193.033

(4.267) (2.547) (296.571)

fire_safety_cost_percent -0.376 3.877*** 236.483

(2.662) (1.196) (165.909)

electrical_safety_cost_percent 6.480 29.995*** -142.220

(8.271) (5.176) (507.700)

Constant 1.673*** 1.629*** -3.330*

(0.154) (0.180) (1.863)

Observations 434 178 205

R-squared 0.145 0.127 0.335

Workers’ Perception about Safety MeasuresPerception of Workers about Building Safety, Fire Safety and Electrical Safety

(Perception defined by 0=if worker perceives no risk, 1=if worker perceives some risk)

VARIABLES building_risk_

perception

fire_risk_

perception

electrical_risk_

perception

treatment _dummy 0.015 -0.122*** -0.127***

(0.023) (0.019) (0.017)

time_dummy -0.167*** -0.359*** -0.450***

(0.019) (0.014) (0.014)

treatment _dummy* time_dummy -0.055** -0.090*** -0.004

(0.025) (0.021) (0.021)

firm_size -0.000*** -0.000*** -0.000***

(0.000) (0.000) (0.000)

building_safety_cost_percent 0.268 0.845 -0.022

(0.483) (0.897) (0.759)

fire_safety_cost_percent -0.194 0.409 0.974

(0.169) (0.503) (0.606)

electrical_safety_cost_percent 1.298** 2.101* 3.295***

Constant 0.444*** 0.893*** 0.937***

(0.020) (0.017) (0.017)

Observations 7,791 8,349 8,120

R-squared 0.130 0.190 0.194

Thank you