Labour Minute Costing: A Promising, Practical Way Forward for Living Wages

Date: 23/05/2015

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Update:  Full Labour Minute Costing Report now published

In this post we explore labour minute costing and some of the potential it represents. This is the first in a series dealing with labour minute costing and its implications for living wages.           

Garment brands have a responsibility to ensure the prices they negotiate with factories are adequate to cover living wages. In most cases, this means brands paying higher prices (e.g. FOB or CMT) to cover thecost of living wages. And, because most factories produce for numerous brands, FWF sees collaboration among brands in shared suppliers as a key to making living wages a reality.

But, in practical terms, what form do such efforts take? What steps can brands take to fairly distribute the costs of living wages?

FWF looks to a practice called ‘labour minute costing’ as a promising response to such questions.

What is labour minute costing?

Labour minute costing is based on the work of Professor Emeritus Doug Miller, from Northumbria University. It essentially is a method for calculating the cost of the time required to produce a particular garment.

As Miller explains, ‘labour minute costing is based on a fairly basic concept. To calculate the labour costs of a given garment, we need to know, on one hand, how much time that product takes to make. On the other, we need to know what the cost of that minute is in terms of the wage in the factory.’

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Miller observes that a parallel of such costing already exists in the garment industry. ‘Factories already quote on the basis of a number of minutes to make a garment. But this is usually a “factory working minute cost” which includes non-labour overheads.’ Labour minute costing targets labour costs as separate from other running costs.

So the labour minute cost, which is the first variable in the formula above, can be found through a series of calculations that integrates all wage costs, including benefits etc., usually on an annual basis. These total costs are divided to reach a per-minute value, which is the labour minute cost.

LabourMinuteCost

If the total labour costs are adjusted to show what a living wage would cost, this formula can be used to determine the per-minute cost of paying workers a living wage.

To clarify this process, let’s consider the case of a hypothetical factory, FairFashions, which produces for a number of brands, including BrandA and BrandB.

FairFashions calculates that, if it raises wages to living wage levels, it will spend an average of $0.10 per minute of labour. Because this is an average based on all workers’ activities –including cutting, sewing, ironing, packing, etc. – the $0.10 labour minute cost can be used to calculate labour costs for any product.

In order to calculate the second variable in the formula, FairFashions needs to consider the total labour minutes used in producing each garment – from sampling through sewing to getting the shipment out the door. As Doug Miller explains, many garment factories already undertake these calculations using a variety of industrial engineering practices.[1]

In the case of FairFashions, the factory estimates that the relatively simple t-shirt it manufactures for BrandA will require an average of 10 labour minutes to produce. A polo shirt made to spec for BrandB, on the other hand, is typically more labour intensive. That will require an estimated 35 minutes of labour to produce.

By multiplying the per-minute labour cost of $0.10 times the number of minutes needed for production, FairFashions calculates that the t-shirt will require $1.00 in labour costs, while the polo shirt will require $3.50.

Common labour minute costs – different prices

Although the labour minute cost is constant across all garments that FairFashions produces, each garment’s labour cost is dependent on various factors that affect the total labour minutes required for production – notably design, order size, and complexity.

The total prices paid for each garment would also include material costs, overhead, and factory margin, which taken together with the labour costs, determine the total FOB price. So BrandA might pay a living wage FOB of $7.00 per t-shirt, while BrandB might pay a $13.00 living wage FOB per polo shirt.

Labour Minute Costing: A Way Forward for Living Wages

Labour Minute Costing represents a promising way forward for living wage implementation. Yet there is a great deal more to learn about its real-life implementation.

With Doug Miller and other wage experts, FWF is developing guidance on labour minute costing for FWF members. Watch this space for more about this new guidance when its ready, as well as real life examples of labour minute costing in factories.

 

 

[1] For further details see Doug Miller’s ‘Towards Sustainable Labour Costing in the Global Apparel Industry‘ in Capturing the Gains: Economic and Social Upgrading in Global Production Networks (2013).

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