How much more do brands need to pay? What FWF’s research shows us

Date: 03/04/2015

obst_costFrom a business perspective, a very real question when considering living wages is: ‘How much is this going to cost?’

There is a strong relationship between wages and pricing. As FWF’s Margreet Vrieling explains, ‘Wages are often the first place that factories look to cut costs in order to keep prices low.’ So constant calls from brands for lower prices result in real pressure on workers’ wage levels.

‘The FOB price must be adequate to pay living wages, observes Vrieling. ‘Otherwise the business relationship undermines the responsibilities of the brand and supplier to respect human rights.’

Since 2011, FWF has been working with members and selected experts to address the very real question of cost when it comes to living wages. Two FWF publications offer some important insights into the cost of living wages, based on costing information that is usually closely guarded by factories and brands.

FWF’s 2012 Climbing the Ladder to Living Wages report offers pricing data that emerged out of FWF’s pilot in Tirupur, India, which focused on costing a t-shirt created using Fairtrade Cotton. According to FWF’s calculation in that study, ‘payment of a living wage would increase salary costs for a single t-shirt from €0.18 to €0.45. If all other costs remain the same and the amount of profit earned per t-shirt remains steady, this would increase the total FOB price by €0.27, which represents a 5.4% increase in FOB price.’

FWF’s 2014 publication Living Wage Engineering reports on a pilot that dealt with more garments in various production locations. Project designers took extra precautions with regard to competition law and created 6 hypothetical products (backpacks and outdoor jackets) based on the real outdoor products included in the study. Where all other costs remained steady, FWF found that living wage increases would lead to an increase in FOB of 2 to 12 percent, depending on the product.

The degree to which the FOB price increased depended largely on the current level of wages, relative to living wage benchmarks. Where the jump to living wages was a big one, the FOB tended to increase more. Yet other factors also played a role in the degree to which FOB increased with living wages, most notably the complexity of the product design. Complex products tend to require more staff time to create. Therefore an increase in wages would likely have a larger impact on FOB.

FWF continues to develop its tools [link to tools blog] and thinking on costing living wages. This Portal will host further discussions about costing in coming months.

Has your organisation or company done work to uncover the costs of living wages? If so, we would love to hear your findings.

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