In search of a living wage
Thursday, 01 November 2007 17:28
"Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing, medical care, necessary social services, and the right to security..." - United Nations Universal Declaration of Human Rights Article 25.1
A brief history
In the decade or so since workers and consumers began to campaign for living wages in the garment industry, much has changed, and at the same time, much hasn't.
Most companies responded at first by publishing codes of conduct outlining the labour standards that they committed themselves to upholding. Many put in place auditing programmes which, for all their many flaws, required cost and effort. In the UK, most major high street names have joined the Ethical Trading Initiative (ETI), a forum for collaboration with each other, trade unions and other non-governmental organisations (NGOs) representing the workers' perspective. The ETI's 'base code', which its members commit to working towards, makes clear that, "wages should always be enough to meet basic needs and to provide some discretionary income."
Yet for garment workers and their families, little has changed. Wages have fallen - by as much as half in Bangladesh - despite increased consumer spending on clothes. Workers still find themselves struggling to survive on the breadline, working excessive overtime just so they can make ends meet. The growth of China as a garment exporter and the freeing up of trade in the industry has put the squeeze even harder on workers as suppliers struggle to maintain their business in an environment of tumbling prices.
As companies continue to develop their policies on workers' rights, and to make them more visible, they need to be honest about the real extent of their commitments to ensuring workers earn a living wage, and they need to investigate why their apparent commitment is not having the impact it should.
How workers see it
Because of the fact that wages are so low and the cost of living so high, she finds it very hard to make ends meet. At 18, she is the only earning member of her family of three. She is an only child and both her parents are jobless. She spends almost 40% of her income on the rent of her one bedroom house. [...]
When told that it is checked that workers should get at least the minimum wage set by the government, which they all do, she said that if they think this wage is enough they should all try to live on this amount for a month and decide if it is OK.
Employment in the garment industry offers hope for people like this young Pakistani woman, in areas where work is scarce. In many countries those who can get jobs in factories like hers are considered lucky, and young girls leave their families in rural areas to travel hundreds of miles in search of them. Yet the reality when they arrive is tough. A Thai woman gives a similar example:
We work until 2 am or 3 am during the peak season. We always have to work a double shift. Although we are very exhausted, we have no choice. We cannot refuse overtime work, because our standard wages are so low.
These are not the extreme examples: this is the norm. As this chart shows, the wage an average person working in the garment industry takes home is often well below the national poverty line, itself short of what can be reasonably defined as a living wage.
The chart also shows the minimum wages set by governments - often in negotiations with governments and trade unions - in these countries. These minimum wages are set in the context of ferocious competition between countries for clothing trade and consequently well below these governments' own poverty thresholds. Worse still, the responses from companies to our survey indicate that many suppliers do not even pay this legal minimum.
An additional problem exists for the millions of piece-rate workers and homeworkers in the global garment industry. Paid by the number of garments they produce, not the number of hours they work, the rate per piece often makes it impossible to earn a living wage in a normal working week, but when the issue is raised, managers will simply argue that they should work faster. Employed informally and further removed from the brands, they are more vulnerable to seasonal variations in work.
It's not just garment workers themselves who suffer, but their families too. Young people who have travelled from the country often need to send back money to unemployed or poor parents before they can look after themselves in the city. The garment workforce is 80% female, and those who are not looking after their parents often have children to support.
Labour Behind the Label defines a living wage as one that enables workers to meet their needs for nutritious food and clean water, shelter, clothes, education, health care and transport, as well as allowing for a discretionary income. It should be enough to provide for the basic needs of workers and their families, to allow them to participate fully in society and live with dignity. It should take into account the cost of living, social security benefits and the standard living of others nearby. Finally, it should be based on a standard working week, before overtime, and apply after any deductions.
The most common response from companies to our inquiries about living wages was to point out that there is no universally agreed definition of a living wage. This is not entirely true. While some elements of our definition might be disputed, three are common across almost all definitions formulated by trade unions, campaigners, academics and companies. This consensus seems to be that a living wage should:
- Cover basic needs
- Include a small amount for savings or discretionary income
- Cater for dependents
How this is applied in practice is a matter of some discussion, although as the box overleaf shows, rationales have been developed and applied by organisations including Social Accountability International, the body whose SA8000 factory accreditation many companies use, and the Greater London Authority. Using these rationales in collaboration with locally-based organisations, it is quite possible to come up with an in-country working figure for a living wage.
cademic discussion on how to calculate and measure a living wage can be avoided by applying the negotiated, rather than the calculated approach. Allowing workers and their managers to set wages through bargaining between themselves not only avoids definitional issues, it also empowers workers to start to take their working conditions into their own hands.
The major disadvantages of the negotiated approach are, firstly that it does not guarantee that brands or retailers will be willing to pay the new rates, and secondly that most garment workers do not have access to their right to bargain collectively. With most companies' purchasing practices set up to ensure low costs and profit maximisation, relocation is a real risk if wage increases lead to cost increases.
Workers in the Americas, Eastern Europe and South East Asia have all been threatened with companies' potential relocation to China, famous for its massive, cheap labour force; yet Chinese workers are warned against workplace complaints by threats of moves to Vietnam, where Vietnamese workers are simultaneously threatened with abandonment in favour of China. The threat of relocation if wages and other costs increase contributes to the general sense of fear that prevents workers from joining trade unions.
This is why the only way wages can really be addressed is on a sector-wide level. Only by working together can the brands end the downward spiral in prices that they have started and on which their competitiveness depends. Only then will suppliers have the confidence to negotiate prices that factor in a living wage, and to set meaningful minimum wages.
Puncturing the myths
Three arguments arise against paying a living wage. Let's address them in turn.
Myth 1: Paying a living wage is impossible because there is no consensus on how to calculate it
From the workers' perspective, there is little sense in this argument. It sounds much more like an excuse than a policy. There is some truth in saying that there are few examples of applying a living wage in practice, but to make this argument with any validity, a company needs to demonstrate that it is taking at least some steps to raise wages above the basic minimum that most acknowledge is too low, and in the long-term to develop a living wage rationale.
he ETI tackled this issue in a working paper back in June 2000, which recommended that,
companies should consult widely with the local community about the appropriate level of the living wage, then negotiate the precise amount with representatives of the workforce in a manner consistent with the freedom of association and right to collective bargaining provisions of the ETI base code (ILO Conventions 87 and 98).
In situations where the negotiating power of the local workforce is weak because union representation is undeveloped or because the labour market is over-supplied...the responsibility of the company to arrive at an adequate measure of the living wage (through study and consultation) is proportionately greater.
Six years later, no companies, whether in the ETI or not, have made any progress on this beyond participation in a few working groups, and few seem concerned about this state of affairs.
Myth 2: Governments, not companies, need to set reasonable minimum wages
While it's true that minimum wages set by governments (often negotiated with local business and trade unions) should ideally be reasonable, there is a clear reason why they aren't. Governments have to think about their international competitiveness, and are all too aware that multinational fashion buyers will move elsewhere if labour costs become too high. It's down to the multinational companies who dominate garment supply chains to show that they are willing to absorb the small increases in production costs that might occur, in order to give governments the confidence to raise minimum wages in the first place.
Fashion brands will need to work both across their entire supply base in different countries, and with other brands buying from each country, to move forward on the living wage issue. For many companies at present, this amounts to signing up to the right initiatives and committees: this is a step forward, but rarely translates into real policy changes. We have acknowledged the companies that seem to be taking real efforts to put collaborative initiatives to good use in their profiles.
Myth 3: Low-income countries would lose their competitive advantage if wages were higher
The first and most obvious point to make here is that labour costs represent such a small proportion of the cost breakdown of a garment that even doubling them would make only a small difference. The labour costs in a typical piece of clothing make up two to four percent of its retail price. For example, the labour cost for an £8 T-shirt sewn in Bangalore, India, is around 15 pence.
Philip Green, owner of Britain's fourth biggest clothing retailer, Arcadia group, took home a £1.2bn share dividend at the end of 2005. At £30 per month, it is hard to imagine that providing a living wage for workers in Bangladesh would break the bank.
On top of this, it's not just the cheap labour that entices production to other countries. Classic Ricardian comparative advantage - the theory behind the liberalisation of global trade - says that everyone should gain if countries specialise in production of the goods and services that they produce more efficiently than others. China is popular in part because of its cheap workforce, but in part because its industry is very efficient and productive, and because it can offer the 'back-linked industries' right the way from cotton production to finished garment that most other countries cannot. Also its currency, the Yuan, is undervalued against other currencies.
Wage increases have been shown to improve workforce morale and productivity, and to reduce absenteeism and employee turnover, so paying a living wage could even improve quality and flexibility, allowing enlightened suppliers to retain a competitive edge.
What should fashion brands do?
Most companies seem to think that ensuring payment of a minimum wage is sufficient to have discharged their responsibilities, or at least an adequate stop-gap measure. But a stop-gap for what? There is little cause for workers to be optimistic on the basis of our survey.
Brands and retailers at the top of the supply chain aren't passive entities floating on a sea of global trade. When they work together, they control the industry. They don't have to relocate to chase the cheapest labour. They could take responsibility for their actions, commit to paying a living wage, and absorb the small increase in costs this might create.
Whether a living wage is defined by a formula or by collective bargaining, it requires that companies address the root problems of the conflicting messages they send to factory managements, and the way they purchase. This means finding solutions that work on a country-wide, supply chain-wide and ultimately industry-wide level. Companies deserve credit for working actively to find industry-wide solutions to the difficulty, but not simply for signing up and then doing nothing.
This means that buyers need to,
- Develop strategies to improve wages, above and beyond minimum wages, in their supplier base.
- Engage in good-faith negotiations with factories to ensure that a living wage can be paid out of prices paid to the factory. Accept that this may increase the cost they pay to suppliers.
- Make it clear to suppliers that they expect workers to be paid a living wage.
- Make it clear to suppliers that negotiating wages via a functioning collective bargaining agreement will not come at the expense of their custom.
- Ensure that local trade unions, who are better placed to get information from workers, and know the local cost of living, are involved in supplier audits.
- Work with other companies, trade unions and governments on a national and industry-wide level to develop strategies to raise wages, through active participation in multistakeholder initiatives.
This is an extract from Let's Clean Up Fashion: the state of pay behind the UK high street, published in September 2006.
