Minimum wage increases Bangladesh and Myanmar highlight need for labour costing transparency

Date: 21/11/2018

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.

When a garment-producing country increases its legal minimum wage – as both Myanmar and Bangladesh have done in 2018, raising the mandatory minimum wage by 33 and 51 percent respectively – buyers should pay higher prices for their products to cover the increased labour costs incurred by the manufacturer. In reality, they do not always face up to their responsibilities.

Buyers are not willing to pay more
‘We showed factory owners research conducted by Mark Anner in Bangladesh after the minimum wage increased in 2013. It showed that buyers were not willing to pay more,’ says FWF expert Klaus Hohenegger. ‘Brands accept to increase prices when fabric cost increases or currency fluctuates, but start bargaining when the minimum wage goes up, making the argument that factories simply need to increase their efficiency. Our view is that it is the buyer’s responsibility to comply with legal wage requirements.’

Unless buyers cover the additional labour costs, the wage increase can work against, rather than in favour of, workers. Struggling to cover production costs, factories may reduce their workforce, force production staff to work longer hours or set higher production targets.

Breakdown of costs
Suppliers are at times reluctant to provide a detailed breakdown of costs, concerned that it will be used against them and they will be pressured to lower prices even further. The manufacturers who attended the FWF workshops in Bangladesh and Myanmar understood, however, that being able to provide evidence of actual labour costs could help them.

‘All factories were interested in the methodology. What we do is not rocket science, but we look at costing in a different way,’ says Hohenegger. ‘The manufacturers realised that digging further can help them in negotiations with the buyers.’

By isolating the labour component from other production costs, FWF’s costing methodology makes it possible to isolate the labour cost per minute during negotiations between buyers and suppliers to ensure that both mandatory and factory specific wage costs are accounted for.

Much needed transparency
‘The labour minute calculator offers much needed transparency. It shows how much the price of a garment would need to go up in order to give factories the required financial room to ensure payment of at least the legal minimum wage, all other things being equal,’ says FWF’s Koen Oosterom. The FWF tool also makes it possible to calculate the labour cost per product based on a higher wage level, such as a living wage benchmark or a wage agreed through Collective Bargaining Agreement (CBA).

Garment prices are highly sensitive, particularly in the fiercely competitive fast fashion sector, but a detailed examination shows that the labour element accounts for a relatively small share of the price that consumers pay.

‘The cost of labour is just a fraction of the retail price, often not more than 1-2 percent,’ Oosterom points out. ‘Making this transparent is important as it shows that it is entirely possible to increase wages without affecting the ‘marketability’ of the garments concerned.’

A new perspective for trade unions
Trade union officials representing garment workers in Bangladesh and Myanmar also welcomed the opportunities offered by the labour costing technology. To most trade union representatives, the workshops led by FWF experts offered a first introduction to labour costing calculations, and a new perspective on pricing dynamics and the pressure faced by factory managers. They viewed the costing methodology as a useful resource to support their position during CBA negotiations.

In fact, the response to labour costing during the FWF team’s visit to Myanmar and Bangladesh showed a convergence of interests between trade unions and manufacturers, both wanting to ensure that buyers pay the full cost of legal minimum wage increases. Brands determined to ensure that the workers producing their garments are paid at least the legal minimum mandated by law also stand to gain when actual labour costs are revealed.

‘There is common ground for brands, factories and trade unions,’ concludes FWF expert Klaus Hohenegger who hopes that the growing interest in labour cost transparency might lead to an agreed sector wide approach to due diligence on wage compliance.

 

 

 

 

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