Can productivity gains cover the cost of living wages?

Date: 02/04/2015

obst_-productivityIt 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?

Ways garment factories can improve productivity

The obvious answer is to develop skills and speed in making garments. This comes with experience, as workers gain dexterity and familiarity with relevant machinery. Training also has a role to play, particularly for new workers.

Speed is also linked to the size of the orders a factory receives. ‘Larger orders often see workers producing more garments per hour, as they get into a groove with the product,’ explains Klaus Hohenegger, Head of Switzerland-based Sourc!ng Solut!ons

Another way to enhance productivity is through infrastructure improvements – e.g. enhancements to the layout of a production team, which can lead to faster assembly times.

Management improvements also play a role – e.g. with regard to production planning, communications with workers about product specifications, and human resource improvements to minimize worker turnover. Indeed, high worker turnover tends to be a major impediment to efficiency in many garment factories.

‘We have a great deal to explore with regard to productivity as it relates to wage levels,’ says FWF Director Erica van Doorn. ‘Do certain productivity efforts have a more direct impact on wages? What factors need to be in place to be successful? And how do we incentivize such improvements?’

Who pockets the gains?

The question of incentives for productivity is a critical one in the context of wages.

‘Productivity is often enhanced through capital investment by managers,’ explains FWF’s Kees Gootjes, who heads FWF’s efforts in Macedonia. Managers expect a pay-off from this investment, often via gains from producing more in less time.

Yet various brands and others look to these gains as the source of wage increases for workers. Indeed, workers also have a stake in most productivity improvements.

There is a clear tension here that merits further investigation. Are potential productivity gains large enough to create a financial incentive for managers to invest, while also covering living wages? What measures can be taken at the outset to set the stage for equitable and effective distribution of gains?

Brands play a key role

One clear measure that would need to be in place for productivity gains to take hold is ensuring factories have a steady stream of orders.

‘Factories often have reservations about investing to improve efficiency’, explains Kees Gootjes. ‘They paint scenarios where workers are able to deliver a high-productivity order one day but are sitting around without work the next day.’ Such lulls in production completely undermine average wage levels.

Hohenegger concurs: ‘I have spoken with factories that are open to working with brands to take the lead on living wages… Before seeking to discuss whether brands will pay more to cover the cost, they call for steady orders over the production year. For them, this is the best basis for wage increases.’

‘Given the structure of the garment industry,’ says Gootjes, ‘productivity improvements – and the wage increases those improvements could potentially deliver – require on-time orders, better predictability, and larger orders. Brands can do a lot on their end to raise productivity.’

Overtime, wages, and productivity

FWF’s initial findings with regard to productivity seem to align with work done by groups like Impactt Ltd. Interestingly, Impactt has shown that productivity improvements (among other efforts – including better production practices by brands) can contribute to reduced overtime. By increasing the number of garments that are produced per hour, it is possible to reduce the total number of hours worked. This can lead to real cost savings for factories, given overtime pay usually costs at least 50% more than production during regular hours.

Yet if overtime hours decrease, workers’ income is hurt. There is a need to increase regular wages to offset this loss. It is here – where overtime and wages intersect – that FWF finds work on productivity to have the greatest potential.

Understanding productivity – and what it offers

Various labour experts raise the need for clarity about what productivity involves.  Legitimate improvements in productivity can be beneficial for workers.  But increases in rates of production achieved via undue stress or even abusive work situations run in direct opposition to our aims.

Here, too, it is important to underscore the key role played by workers in raising productivity. We will write more about this in future posts.

Considerable further research is needed with regard to effective integration of productivity efforts into living wage strategies.  What seems quite clear to us thus far is that productivity gains, alone, are not likely to finance living wages. We foresee needing to integrate productivity strategies with other methods for covering the costs. (Access more in ‘Costs’.)

Watch this space for more on productivity, wages, and overtime.

Comments are closed.