In many instances, wages will need to be doubled, tripled or even more to achieve living wage levels. How will that affect prices?
In FWF’s newest discussion paper, we examine the application of human rights due diligence in the area of wages. You can read the full report here.
In order for wage compliance to be achieved and for wages to improve, both a greater transparency in cost price negotiations between apparel buyers and their suppliers, and a precise determination of the labour component must take place.
In the area of labour costing, four main areas require discussion:
- the mandatory wage elements payable to a worker including employer wage related on-costs
- the total of direct and indirect labour costs divided by the available capacity minutes
- the standard allowed minutes agreed for the apparel item in question
- and a factory’s efficiency.
FWF is proud to introduce its new Labour Minute Calculator for Bangladesh – the latest addition to the FWF Living Wage toolbox. Bangladesh recently approved a 51-percent increase (for Grade 7) in the statutory minimum wage, effective as of December 1, 2018.
With the higher cost of labour comes the responsibility for brands to revisit their pricing levels. The Labour Minute Calculator enables suppliers and buyers to determine the cost of one minute of labour in a factory and makes components such as bonuses and insurance visible. The new FWF tool offers enough flexibility to accommodate for exchange rate fluctuations and real overtime hours.
FWF experts Doug Miller and Klaus Hohenegger have published a comprehensive article entitled ‘Who pays for a higher wage for garment workers?‘ in industry publication Just-Style.
Focused on statutory minimum wage increases expected in several countries, the articles highlights the importance of calculating the minute cost of labour and making the wage component of garment prices visible during buyer-supplier negotiations to ensure workers are paid what they are legally due.
FWF experts Klaus Hohenegger and Doug Miller visited Bangladesh and Myanmar in October 2018, accompanied by FWF country manager Koen Oosterom. The FWF team conducted training workshops with managers of factories supplying FWF member brands and trade unionists and labour support organisations to promote the costing methodology and costing sheets developed by FWF. These tools make it possible for manufacturers and buyers to isolate the labour component of production costs.
In January 2016, FWF brand Continental Clothing launched its new FAIR SHARE range of T-shirts and sweatshirts, which carries a small price premium to enhance workers’ wages. Continental received the 2016 FWF Best Practice Award for this inspiring project.
Thanks to a modest increase in the retail cost of the clothing produced at its supplier factory in India, Continental was able to raise the wages of the poorest workers by 50 percent. The British company took care to ensure that additional cost at the point of sale of 10p (0.14€) per T-shirt and 54p (0.71€) per hoody is passed on in its entirety to the workers, avoiding additional markups as the clothes move along the value chain.
In this Best Practice video (here you can find the long version), FWF follows Continental’s Mariusz Stojach as he visits the factory in Tirupur, talks to the workers about their needs and assesses the project with the NGO SAVE, a partner in the project. As he charts the history of the project, he discusses the challenges of increasing costs and the benefits of close cooperation with suppliers.
Since FAIR SHARE was launched, all workers at the factory in India receive a regular bonus, which has boosted their income, even if it still falls short of a proper Living Wage. The company now plans to extend the project further, to reach all levels of its supply chain.
Meet Thet Thet Zon. She has been working as a sewing operator for two years, 6 days per week, 11 hours a day. She earns 125 dollars per month. What does she have left at the end of the month?
Salaries are currently a topical issue in Myanmar, where the minimum wage is up for review. With the high inflations and rising costs of living, unions and Myanmar’s low-wage garment workers are making the case again for better wages.
FWF is very happy to launch Living Wages: An Explorer’s Notebook, the next step forward in figuring out the routes brands and factories can take to achieve payment of living wages. The innovative guide offers concrete advice, based on real-life experience.
The Notebook defines nine obstacles that stand in the way of living wages, and offers some solutions for overcoming them. ‘For the first time, garment brands can access real life examples and concrete guidance on implementing higher wages,’ explains FWF’s Associate Director Sophie Koers. ‘For example on how to select a factory partner, collaborate with other brands and set the target wage.’
‘Start paying higher wages. Now. Analyse what worked and what didn’t. And then keep going.’
This sentence summarises FWF’s advice to brands that seek to make real strides towards living wages in their supply chains. And it offers more concrete advice on how to do this in Living Wages: An Explorer’s Notebook.
Use the tools below to further support efforts to raise wages in your supply chain.
FWF has published Labour Minute Costing, a new report that provides guidance to brands, factories and trade unions on the practical steps necessary to create wage floors in factories. Based on real-world examples, the report covers three main topics:
- How to calculate the total cost of bringing a factory’s lowest-paid workers up to any given living wage benchmark – e.g. creating a wage ‘floor’ in a factory.
- How to incorporate the increase in wages into normal product costing systems, in a transparent and verifiable manner.
- How to ensure that increased costs can be shared fairly among all of a factory’s customers, without violating EU competition law.
The report was written by by Doug Miller, Emeritus Professor of Worker Rights in Fashion at the University of Northumbria, and Klaus Hohenegger, director of Sourc!ng Solut!ons GmbH. It is based in on pilot work conducted by FWF in Macedonia, with the support of CNV Internationaal.
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. Read more
A guest blog by Doug Miller, emeritus professor Worker Rights in Fashion, University of Northumbria
Hats off to Fair Wear Foundation for really doing the necessary groundwork (wage ladders/labour costing/living wage cost engineering/seeking clarification on the Anti-Trust-competition in respect of buyer collaboration). All this helps us get closer to mechanisms for eradicating poverty wages in the global apparel industry. We are I think now at the cusp of nailing the implementation questions when it come to a ‘living wage’. For me there are a number of key realisations in this debate.
From 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.
It is a basic tenant of economic theory: Increased productivity levels are tied to higher wages. In essence, if a worker can produce more widgets in an hour, he/she makes more money for that time.
Clearly productivity needs to be part of the living wage discussion. But how does this work in the garment industry? How can workers produce more garments per hour?
Most discussion around retail costs of living wages has centred on the idea that the living wage premium (i.e. the additional per item cost that would be paid for living wages) would be passed on to the consumer.
As explained in our post, ‘How much more would living wages cost consumers?,’ our research of selected outdoor products found that, if we assume the cost of wage increases can be transferred directly to consumers, retail prices would increase from less than one percent to 7%, depending on the product and the size of the wage increase. This is to say that consumers could cover the cost of living wages by paying several cents to less than $5 USD more for our hypothetical items, which ranged in price from $45 to $1,000.
FWF’s research on costs for brands and consumers and development of costing sheets and other tools represent real strides in helping brands and factories answer the critical question: How much more do wages costs?
It is also important to gauge the corollary costs of living wage implementation. In addition to increased production costs, what changes, if any, will there be to monitoring fees or taxes and duties? Or where training is required (e.g. through FWF’s Workplace Education Programme), how much does that cost?
FWF maintains that there are structurally-integrated practices in the garment industry that will need to be addressed if there is any hope of making living wage implementation scalable. One such practice pertains to the way factories calculate factory margins.
Consumers want products made by people who are treated fairly and receive a wage they can live on.
As FWF’s Associate Director Sophie Koers explains: ‘Various marketing studies and consumer surveys indicate that a significant number of consumers will pay a premium to buy clothes that are made fairly. We know the demand is there. Our focus now is on building solid models for delivering living wages to reliably meet that demand.’
The FWF approach to living wages is pretty simple:
1. Methodically identify and investigate the obstacles to living wage implementation
2. Develop tools to overcome the obstacles
3. Get out there and do it
At FWF we are doing all three of these in tandem. Of course, of these three tranches of work, the third is the most important for workers. And to take effective action on wages, FWF members and stakeholders need tools. To this end, tool development continues.