The tragedies at several garment factories in Bangladesh have claimed hundreds of livesand focused international attention on this important but often overlooked industry. Yet greater scrutiny has not led to greater understanding, raising the prospect that any proposed solutions will have serious unintended consequences for this industry and the four million people it employs.

So far, much of the discussion has focused on Bangladesh's minimum wage law. It's true that at its current leveleven after two revisions in recent yearsthe legal minimum wage still isn't enough to support a life. After working two hours of overtime per day, the average garment worker's gets take-home pay of between $70 and $80 per month.

Assuming the garment worker (80% of whom are women) is married to a rickshaw puller and has a child, the rent on a one-room home is around $40 per month. Basic food (30 kilograms of rice) costs $13 a month per adult. Vegetables and occasional meat and fish cost another $20 per adult. The cost of milk for one child is $5 per month. Those bare necessities have already consumed more than the garment worker's wage.

One problem is that in this household the garment worker is the primary breadwinner. Few other jobs in the country pay as highly relative to the skill level of the worker. Increasing the minimum wage in the garment industry to $64 per month before overtime, or even $90 as some have proposed, would certainly help such a household make ends meet. But that puts the entire burden for increasing Bangladeshis' standard of living on a single industry that can ill afford it and needs the price support of global brands.

Then there is the question of who is paying that minimum wage. While the worker is sewing, on another floor of the same factory building negotiations are under way between the factory owner and a retailer's representative. Let us say they are trying to settle on an order to produce over the next five months.

The factory owner is offering a shirt to the buyer at $6.75 per piece. Of that, the owner will spend $4.75 buying the 1.9 yards of 100% cotton with a fine 50s thread count, and another $1 buying the labels, accessories, and other components the retailer specifies. The remaining $1 per shirt gets stretched thin. Part of it funds the "cutting and making," which includes wages for the workers. Part of it funds the next round of letters of credit the manufacturer will use to ensure a steady supply of raw materials over the life of the supply contract. Part of it goes toward capital expenses. And part of that dollar will become the manufacturer's profit.

Imagine an order for 400,000 shirts is spread over a four-line (meaning four rows of sewing machines, each row with 50 workers) factory of 1,600 square meters. Those 400 workers produce 3,077 pieces per day. The wage cost works out to about 38 U.S. cents per shirt. Another 15 cents goes to sending the shirt for a fine washing spin. Rent and utilities for the factory floor works out to about 11 cents per shirt, and head-office and marketing costs for the factory are 11 cents.

As for the remaining 25 cents, that will just about cover repaying a 10-year bank loan at 18% interest, which the factory owner has used for set-up costs along with a home and car. All is at a delicate equilibrium, until the owner feels compelled to give in to a firmly worded request from the retailer for an additional discount, or a demand to air-freight, at the manufacturer's expense, some boxes of shirts that suffered a two-week production delay and now won't be accepted by the retailer if they are any later than they already are.

Given this financial situation, some recent "solutions" to workers' problems would be extremely challenging for the industry. The government has proposed an increase in the minimum wage but would make the increase retroactive to May 1. That will simply be impossible for manufacturers who are already locked into supply contracts for the next few months.

Meanwhile, an agreement announced between European retailers and workers' advocates this week may lead to investment in safety enhancements. But many on-the-ground realities will continue to haunt the industry unless land and transitional funds are readily available to turn out-of-date factories into fully equipped and compliant facilities. Assuming the factories are 2,600 square meters per floor, setting them up properly would cost approximately $128,000 per factory.

Some factory owners may be in pursuit of a quick profit. But for many of us, the problem is not that we do not want to have gleaming, fully up-to-date factories or to pay our workers a living wage. Rather, it is that we do not have the resources. And we have to balance the costs against the risk that purchasers will turn to other, lower-cost countries. That would be a disaster for Bangladesh, where 20 million people depend on garment workers for financial support.

What are the firms variable costs, fixed costs? If the owner requires a normal profit of $.20 per shirt, calculate the firms total revenue, total cost, and economic profit.

Is the garment manufacturing industry perfectly competitive? Explain.

What would be the effect of an increase in Bangladesh's minimum wage on employment levels in the country's garment industry? Should the country increase its minimum wage?

around 2013