Title: Defining and Achieving a Living Wage: Garment Workers
Authors: Dev Nathan, Purushottam Kumar, Anjum Shaheen and Immanuel Dahaghani
Date: October 2018
Affiliations: Dev Nathan is with GPN Studies, Delhi; the Institute for Human Development, Delhi; and the Duke University GVC Center, USA. Purushottam Kumar, Anjum Shaheen and Immanuel Dahaghani are all with GPN Studies, Delhi.
Corresponding Author: Dev Nathan, email@example.com
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The paper looks at the way in which living wages can be defined. It argues that women’s unpaid domestic work needs to be integrated into the formulation of living wages. Wages well below living wages are seen to result in a mining of workers’ bodies, particularly those of women workers. The paper argues that a redistribution of income within garments’ global value chains (GVCs) is required to bring about garment labour costing based on living wages. After looking at individual brand initiatives to implement living wages, it looks at the possibilities through public sector procurement and moral consumer and trade union pressures on brands. The paper then makes a novel proposal to tax GVCs based on the difference between existing and living wage costs.
The notion of a living wage is quite old, going right back to Adam Smith: “It is equity besides that those who feed, clothe and lodge the whole body of the people should have such a share of the produce of their own labour as to be themselves well fed, clothed and lodged” (quoted in Anker and Anker, 2017: 2). The Constitution of the ILO (1919) states that, “Peace and harmony in the world requires provision of a living wage.” The UN Declaration of Human Rights (1948) also states, “Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity.”
These statements are all ethical ones about the need for a living wage. The economic argument for a living wage comes from the fact that workers are also consumers. Demand from workers is part of overall consumption demand and low wages would require a high level of investment (and inequality) for macro-economic stability. The importance of workers’ demand for macro-economic stability is analytically associated with Keynes’ General Theory and in policy with Roosevelt’s New Deal in the USA,
In developing economies, the question of wages in the industrial sector is necessarily linked to the existence of surplus labour in the economy as a whole. With a large reserve army of surplus labour, there is a connection between wages in the agricultural or rural economy and that in the industrial or urban economy. Until surplus rural labour has been transferred into the urban economy, this reserve army will act as a drag on industrial wages. However, where there are degrees of monopoly, whether in the private or in the public sector, then, workers in the industrial economy could get a share of the monopoly profits, which are higher higher than market wages, as suggested in Kalecki’s theory of wage distribution (1970). In addition, some employers may pay more than the market wage in order to retain trained labour.
In the contemporary form of global value chains (GVCs), or in an equivalent description, global production networks (GPNs), monopoly profits are earned by the lead firms contracting and controlling the production of the manufacturers. The manufacturers that exist in a globally competitive situation earn only competitive profits (Nathan and Sarkar 2011). In addition, because of the relative mobility of capital, the reserve army of surplus labour that comes into the wage determination is not merely the national surplus but the global surplus.
These are rather difficult conditions for the attainment of living wages for garment workers. These difficult conditions have led some analysts, for example, Michael Burawoy (2010), to conclude that any attempt at improving workers’ conditions through workers’ struggles or the exercise of workers’ agency is merely wishful thinking. Admittedly, these are difficult conditions for improving workers’ conditions, but the need is to find ways in which workers’ agency can be exercised and ways found to establish a normative living wage.
This paper deals with the issues involved in the formulation and achievement of a living wage in Asian garment factories, with particular emphasis on the situation in India. The rest of the paper is organized as follows. The next section outlines how a living wage can be formulated in the context of garment workers in Asia, with special reference to India, using the formulations of the Asia Floor Wage Alliance (AFWA, 2017a) and the Anker methodology applied to India (Barge et al. 2018). We then look at why and how unpaid domestic work, largely carried out by women, has to be included in living wage formulations. This is followed by looking at the impact of prevailing wages that are well below the living wage.
The paper then deals with the manner in which wages in garment manufacturing factories enter into the labour cost calculations of the lead firms in garment GVCs, namely, the brands and retailers (referred to henceforth as brands), and the shares of manufacturing wage costs and retail prices. We then discuss the role of labour arbitrage in GVCs and the case for a redistribution of income within them. This is followed by looking at attempts to set up living wage standards by some relatively small brands. Can the morality of “doing the right thing” be extended to public procurement in the lead firm economies—or “headquarter economies”, as Richard Baldwin (2016) labels them? Moral consumer movements in the headquarter economies have played an important role in putting pressure on brands to improve labour conditions in the garment GVCs and can continue to exert pressure for a living wage. However, can there be a movement towards binding agreements? We discuss a radical and admittedly very forward-looking principle—that of setting up a GVC tax to cover the difference between actual and living wages. The last section concludes the discussion.
- What Is A Living Wage?
A living wage is that which covers the needs of workers and their families. An absolute estimate can be made of the costs of a “decent life style for worker and his or her family”, adding up the costs of food, housing and other essentials, like for health, education of children and participation in the social life of the community (ILO, nd)
Actual calculations of living wages by the Asia Floor Wage Alliance (AFWA 2017a), or by what is known as the Anker methodology (Anker and Anker 2017) calculate the costs of food for an adequate nutritional intake, clothes, housing, and other expenses, plus a small amount for “discretionary expenses”, meant to cover contingencies. The Anker methodology, applied to the case of garment workers in Tirupur, India, assumes a daily calorie requirement of 2236 calories per person, while the AFWA sets a calorie requirement of 3000 calories. The AFWA calculations are meant to apply across Asia, so the Indonesian government’s norm of 3000 calories for moderate physical activity has been used.
Both assume that a worker’s household consists of two adults and two children. The norm accepted in Indian wage calculations, based on the recommendations of the 15th Indian Labour Conference, is the same—a worker’s household consists of two adults and two children. A man is counted as one consumption unit, a woman as 0.8 units, while children are 0.6 units each, giving us a total of three consumption units in a household.
The AFWA, on the basis of consumer surveys in some developing countries in Asia, assumes that there is an equal distribution of net income between food and non-food items. Thus, the food basket is calculated and then multiplied by two to arrive at the wage requirement for one person. In the Anker methodology, as applied in Tirupur (see Barge et al. 2018) an actual estimate was made of non-food expenses, including for housing. In this calculation, food constitutes less than half of total expenditure.
With this, the Anker household consumption requirement is INR 18,830.00 per month in early 2016, while that of the AFWA is INR 18,727.00 in 2015 (AFWA 2017b). There is not much difference between the two, despite different methodologies.
The real difference between the two methodologies is with regard to the number of earners per family. The Anker report looks at census data and their own local surveys on the number of earners and comes to a figure of 1.58 full-time workers per family, while the AFWA argues for one worker per family, as a way of integrating unpaid domestic work, largely performed by women, into living wage formulation (AFWA 2009).
There is a long and patriarchal history of the one-worker-per-family norm. In a strictly patriarchal family, it would be assumed that the man is the income provider or bread winner, while the woman carries out the unpaid work of social reproduction. How to bring unpaid work into living wage calculations is a topic we will take up in the next section. With regard to the number of dependents, though, the usual assumption is that children alone are the dependents. However, aged and non-working parents can also be dependents, particularly in workers’ families in developing countries, where parents are unlikely to have any savings. Where countries have a system of universal pensions, parents may not be dependents. This, however, is not the case in the Asian garment supplier countries. In India there is a system of old-age pensions, but the amount is measly, at just INR 500.00 per month, and that, too, is not well implemented. One can definitely argue for aged parents to be included as dependents. China even has a law that requires children to support their aged parents. How would that be possible if parents were not included as dependents on a workers’ income? This would take us back to the figure of at least three consumption units per family dependent on one worker’s wage income.
More important, however, is the argument based on the need to integrate unpaid domestic work into living wage formulations.
- Integrating Women’s Unpaid Domestic Work in the Living Wage
The living wage includes the cost of food items such as vegetables, grain, fruits, meat, eggs, milk, etc. They all require some form of processing, cleaning and cooking in order to be consumed. Similarly, houses and clothes need to be cleaned so that they can be used. None of this labour, however, is included in the calculation of a living wage. These are assumed to be available as unpaid work, and that too, by women.
There has been much discussion in feminist circles about the need to recognize women’s unpaid domestic work. Is it important to take this into account? The number of hours spent on such unpaid domestic work is not so little that it becomes insignificant. Time-use studies for India have shown that it comes to almost 6 hours (351.9 minutes) per day for women and less than an hour (51.8 minutes) per day for men, adding up to a total of 6.7 hours (403.7 minutes) of unpaid work per day by both (OECD 2018). For China it is a little less than 4 hours (234.0 minutes) for women and 1.5 hours (91 minutes) for men, with a total of 5.5 hours (335 minutes) per day for both.
These are not small amounts of time, ranging as they do from 6.7 hours to 5.5 hours per day. Should they be brought into living wage calculations? As mentioned above, this labour is required for the consumption of food and for usage of the residential, clothing and other materials to provide services that are necessary for the reproduction of labour so that workers are able to restore their energy levels so they can return to work the next day and also bring up the next generation of workers. It is undertaken as unpaid work, and that too, largely by women. The result is that the total working time, in both unpaid and paid work, increases very substantially. A woman working in a factory and doing unpaid domestic work would work for more than 14 hours per day, not including the time spent travelling to and from work or overtime hours, while a man working in a factory would work for about 9 hours per day.
In the absence of any way of bringing this unpaid domestic work into any economic accounting, this unpaid work becomes an additional burden, largely falling on women. A full cost accounting of the labour cost of working in a factory should include this unpaid domestic work. Living wage calculations include the cost of raw materials, such as food, in providing the required calorie intake. However, they ignore the labour required to turn these raw materials into consumable food and other domestic services.
The one aspect of domestic work that has, to an extent, entered into living-wage calculations is that of child care. This has not been brought into Indian calculations, but is a feature of living-wage calculations in developed countries, as seen in some examples in Anker (2011). If the costs of child care can be brought into living-wage calculations, then why is similar treatment not given to other domestic and care work?
The Asia Floor Wage Alliance (AFWA) argues that a second income is needed in order to be spent on hiring paid care workers and household services. In some countries such as Thailand and China, workers’ families often buy cooked food, instead of cooking food at home. This can only be done if wages are high enough to enable women to buy cooked food instead of cooking food, and also to buy other domestic services. This would reduce the amount of time spent on unpaid domestic work. It might explain the difference in the total unpaid work of women and men being 1.2 hours less per day in China when compared to India (OECD 2018). A higher wage gives a woman worker the option of substituting commercially produced services for unpaid work. Thus, the commercialization of domestic services can reduce unpaid work. However, it will not eliminate domestic work, particularly that portion which is care work—which is why feminists demand to not just recognize and reduce domestic work, but also redistribute it between women and men.
- Impact of Low Minimum Wages: The Mining of (Mainly) Women Workers’ Bodies
The wages of garment workers tend to be around the legal minimum wage, though, it can often be less than that. These are quite large divergences of the minimum from the living wage. In 2013, national minimum wages were 46 per cent of the living wage in China, 26 per cent in India, 19 per cent in Sri Lanka and Bangladesh, 25 per cent in Cambodia, 31 per cent in Indonesia and 54 per cent in Malaysia (AFWA, 2013). Before we go to discuss the actions needed to achieve living wages, it will be useful to look at what happens when minimum wages are much lower than living wages.
The first effect is that workers work longer hours, accepting overtime, in order to try and increase their earnings. Garment factory managers in India often say that workers prefer employment in a factory that provides overtime. The reason for this is that their wages are so low that they try to get closer to what they require by working overtime. This is particularly so with regard to migrant workers who have targets of amounts they would like to remit home. It is not that workers like overtime; rather, they need to work overtime because of low wages.
Overtime work takes its toll on workers’ bodies. For women, in addition to overtime, there is the factor of domestic work. For women workers, the result of working overtime is that they often end up working sixteen or more hours a day. In peak garment-manufacturing seasons, they can even be forced to work seven days a week as factories rush to complete orders. Fast fashion and shortened lead items exacerbate the tendency to force overtime work. Workers cannot refuse overtime on pain of losing their jobs.
The authors conducted a recent (March–April 2018) study of 37 workers—21 women and 17 men—in two garment factories, one in North India and one in South India. Working hours were reported to be similar for both women and men. It was observed that nearly three-fourths of the workers reported working overtime (73.0 per cent). Overall, 54.1 per cent reported that they worked on Sundays in the three months prior to the survey. On average, a worker worked on 3 Sundays in the three-month period. Five of the respondents reported they worked on more than 3 Sundays in the three months prior to the survey. Workers working on piece rates worked nearly on all Sundays.
Gender-wise, it was observed that men were usually preferred for overtime and working on Sundays rather than women. Overtime working hours for women (15.7 per cent) was half of that for men (31.3 per cent). The case was the same when it came to working on Sundays—38.1 per cent for women and 75.0 per cent for men. Some reported that they did not get any snack breaks in the evening, which made the work very hectic as they had to work continuously for a long stretch after lunch, which only lasted for half an hour. In the peak periods they often worked 14 or 15 hours a day.
Early working hours lead to rushed mornings, resulting in the skipping of breakfast, mostly by women. A long shift of 12 hours, (usually standing for the whole day) and completing the target in the midst of the noisy atmosphere with a break of half an hour often resulted in fainting. One woman stated that she fainted in the factory twice last year. Overall, it was observed that in the last twelve months, 18.9 per cent of the respondents fainted, while 16.2 per cent had needed glucose drips. All the cases of fainting and needing of glucose drips were reported by women workers from both the factories covered in the study. This meant that 33.3 per cent of 21 women who had fainted at work and 28.6 per cent had needed a glucose drip. All the women who reported fainting had worked overtime. Balancing household and factory work ultimately drains women’s bodies.
Low wages lead to low consumption of protein-rich foods such as milk or eggs. Again, the consumption of these nutritious foods is less by women workers than men workers. Overtime was often the standard pattern of work on Sundays. This is particularly telling on the health of women.
The combination of low wages resulting in a poor nutritional intake, and over time, the lack of a weekly rest day, further combined with strenuous work to meet production quotas—this would result in a weakening of the body. This weakening is dramatically illustrated by the 33.3% women who reported having fainted while at work, along with the 28.6% who received a glucose drip. Indian women in general have a high incidence of anaemia due to discrimination in the provision of food from birth itself. However, at least one-third of the women workers’ bodies were not able to replace the energy used up in production. Fainting at work along with the use of a glucose drip—what can one call this other than mining the body?
We should note that the issue of fainting by women working in garment factories initially came up in the context of “mass faintings” in Cambodian factories. This was brushed aside as a matter of mass hysteria, but over time it has been accepted that malnutrition and poor working conditions are key factors in women fainting at work (Preston and Lefler 2014).
Is it the responsibility of international brands and suppliers to ensure that women workers do not have to mine their own bodies? One might say that the mining is the result of not just work in the factory, but also of women having to undertake a second shift of domestic work in a patriarchal society, as also of women implementing the gendered norm of self-denial of nutritious food. As one woman worker pointed out, “I spend most of my time in working either in the factory or at home. Rest is far from me” (Authors’ Fieldwork).
A concern with the sustainability of the female workforce, however, must take into account the need for women to sustain their bodily strength (or reproduce their labour power) and not treat them as disposable objects to be used and then discarded as they get older in order to be replaced by a younger cohort of women. Here, we should mention the good practice of a Sri Lankan garment factory that provided water to the houses of their women workers, so that they would not come to work exhausted (Goger 2014). Again, a garment factory in Bangalore provided a nutritious drink instead of tea to anaemic women workers (Nathan and Juneja 2018). A similar concern of international brands and suppliers for enabling their women workers to reduce their burden by commoditizing at least part of their domestic work and increasing their consumption of nutritious foods would require the payment of a living wage that includes a monetization of the labour cost of social reproduction.
What we saw above is that wages that are below the minimum wage, in combination with patriarchal norms forcing women to undertake most of the unpaid work of social reproduction, result in a mining of women’s bodies. This is a clear human rights violation, remembering that the UN Declaration of Human Rights (1948) states, “Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity.” Fainting at work and the mining of women’s bodies is not part of an existence worthy of human dignity.
- Costing Labour in Apparel GVCs
Brands contract supplies mainly on the basis of costing labour on existing minimum wages. During the days of the Multi-Fibre Arrangement (MFA) when brands had to utilize various country quotas, suppliers in the National Capital Region [NCR] said that they used to quote lump-sum prices. However recently, particularly after the Great Recession (2008-09), as brands have pushed for lower prices there is item-wise costing, with labour costing being done on the basis of minimum wage. In current open costing, the suppliers are expected to reveal the cost of each item to the brands, enabling the brands to bargain over each item of cost. Moreover, international competition is brought into the discussion by claiming that Bangladeshi or Vietnamese firms have quoted a lower price.
Price negotiation is often related to some sharp practices by brands. One of the suppliers mentioned that they quoted a low price, expecting a large-volume order. After prices had been agreed upon, the order was broken into a number of smaller batches, increasing costs and reducing margins.
Wages and hours of work are the most important components of labour costing. Brands cost labour at the prevailing minimum wages and never at living wages. In addition, the labour cost is based on ten hours of work with no double payment for the extra two hours of overtime. Contracting with labour costed at minimum wages is obviously a constraint in supplier factories paying living wages. As mentioned earlier, in the case of higher-value products, the practice of lump-sum pricing still continues. The work required demands a high level skill, usually requiring artisanal production rather than assembly-line production. The suppliers also pay higher wages to their tailors, with one owner mentioning that workers in his workshop earn around INR 25000.00 per month, which is above the living wage level. Of course, this also includes overtime payments. However, the artisanal production of high-value shirts cannot be carried on at the frenetic pace usual in the assembly-line production of low-value products. The main point, however, is that higher product prices can result in higher wages. If the brands can carry out costing on the basis of living wages, rather than minimum wages, their suppliers can also use similar living wage pricing. What difference would living wages make to brands’ retail prices.
- Manufacturing Wage Costs and Retail Prices
We look at the share of wages in supplier costs and brands’ retail prices in order to estimate the dimensions of the problem of paying living wages.
Table 1: India—Apparel Retail Prices and Shares – 2017
|Garment Type||U.S. Retail Prices (US$)||Indian Prices
|Indian Share of Retail Price (%)||Wages as Share of Indian Factory Prices||Indian Wages as Share of U.S. Retail Price|
|Ladies top||25||8.50||34.0||8.05 %
|Ladies dress||34||11.00||32.3||4.0 %|
|Kids top||20||5.50||27.5||3.4 %|
|Ladies skirt||34||8.00||23.5||2.9 %|
Source: Authors’ fieldwork.
Wages as a share of the Indian price of products is calculated from Annual Survey of Industries (ASI) data for 2014–15 on the total wages for all workers engaged as a percentage of Output Value (ASI 2014–15). 8.05 per cent as wages can be taken as the average for all garments manufacturing units. The Indian share of wages as a proportion of the U.S. retail prices comes to between 2.9 per cent and 4.2 per cent.
In discussions, owners and managers of supplier factories usually say that wage costs come to 15 to 20 per cent of their price. However, they include in wages the salaries of staff from supervisors up to managers of various designations. These, of course, are necessary for production. However, with the penchant for family-based businesses, one may suspect that part of these non-wage salary payments is to relatives and some part of this salary payment is really a way of distributing the profits among relatives. The ASI data also has an entry for “total emoluments”, which includes both wages of workers and salaries of the management. For 2014–15, the total emolument comes to 17.5 per cent of the total input cost (ASI 2014–15). This is roughly the figure that factory owners quote in the name of wages or labour costs. However, in the living wage pilots that have been attempted, the focus has been only on those defined as workers (and their wages). Following this principle, we stick to wages and not total emoluments as the representation of wage costs.
For suppliers, a move from minimum to living wage payments would obviously increase the share of the wage cost from 8 to 16 per cent. This would seriously erode, if not eliminate, existing supplier margins. Thus, a movement to living wages cannot be accomplished without some redistribution of income along the value chain.
What about the brands? From Table 1, we can conclude that Indian suppliers’ wages as a share of U.S. retail prices vary from 2.9 to 4.2 per cent. These are for mid-value products. For low-value products, such as T-shirts from Bangladesh, the wage share goes down even further to just 0.16 per cent of the EU price (see Table 2 below). These are very low shares of retail prices.
Table 2: Bangladesh’s Share of Value—T-Shirt from Bangladesh sold in Germany
|Retail Price||Brand Profit||Bangladesh Factory Profit||Pay to Garment Workers|
|Share in Euro||E 28.00||E 4.63||E 1.15||E 0.18|
Source: Oxfam Australia, 2017.
Higher wages, however, have an effect not just on payments to labour, but knock-on effects along the chain, including import duties, VAT, insurance, etc. A hypothetical calculation by Miller and Williams (2009) shows that a wage increase of 50 per cent to 100 per cent would lead to a retail price increase of 6.8 per cent. This is not a trivial increase; but it is well within the 15 to 25 per cent more that U.S. consumers are reported to be willing to pay in order to ensure that products are not made under sweatshop conditions (Pollin, Burns and Heintz, 2004).
- Labour Arbitrage and the Case for Redistribution of Income in GVCs
It hardly needs repeating that the brands capture the bulk of the rents in the apparel value chains. They control the value chains, otherwise referred to as the governance systems, and profit from them. The bulk of value is captured by brands based on their pre-production activities of R&D and design, and the post-production activities of marketing, distribution and related services.
The brands do earn profits from their product innovations. In addition, they also earn a rent from labour arbitrage—the difference in cost by having the product manufactured in a low-wage supplier country, compared to the likely cost had the product been manufactured in their own high-wage countries. This is an unearned income, a rent. This rent is partly based on wages in supplier countries being lower than living wages. As we have seen above, the impact of low wages is to subject workers’ bodies, particularly women’s bodies, to a mining for the purposes of accumulation, or consumer surplus, in headquarter economies.
A higher wage—a living wage—would not end labour arbitrage but slightly moderate it. For instance, with wages in the USA being around 30 times higher than what they are in India, a doubling of the wage in India and other similar supplier countries would only reduce the benefit that brands secure from labour arbitrage from 30 to 28—a small difference in rents for brands in headquarter economies, but a transition to a decent life for workers in supplier countries.
This would involve a redistribution of value along the chain, from brand rents to supplier workers’ wages. How can this redistribution be brought about where brands pay workers in supplier firms a living wage?
The first complication is that brands do not directly employ these workers. However, in the terminology used in Indian contract labour law, they can be regarded as the principal employers, though the direct employers are the Indian supplier firms. This gives brands responsibility for overseeing labour conditions in suppliers. Furthermore, the UN Guiding Principles also argue for the joint responsibility of brands for respecting human rights (which, as seen earlier, includes a living wage) in its business relationships, which include “relationships with business partners, entities in its value chain” (UN Human Rights Council 2011, 15).
There are two other reasons for the value chain argument that brands bear the principal responsibility for labour standards in supplier factories. First, though supplier factories are the ones that enter into labour contracts with their workers, they are constrained in this by the prevailing minimum wage or, at best, the market wage basis for labour cost calculations by brands. Second, brands control the value chain and capture a major portion of the value, including that from labour arbitrage, in the value chain. As with the “jobbers contracts” between brands, manufacturers and labour in the early twentieth-century USA (Anner, Blair and Blaisi 2014), in the contemporary GVC world, brands, suppliers and workers need to enter into legally binding contracts.
- “Doing the Right Thing”: Individual Brand Initiatives
Many brands have made statements committing themselves to eventually paying living wages to workers in supplier factories. However, not much has been done by major brands. M&S carried out an initiative that involved process improvements mentioned to reduce manufacturing costs in their suppliers, so that the cost reductions that could be passed on to workers as higher wages. It reported an increase in efficiency and even wages through some form of enhanced production bonus. The important thing about this and similar scale-up initiatives is that they did not involve the brand paying more. Increases in wages “were achieved largely as a result of improvement in cut to ship ratio… and productivity—thus enabling buyers to avoid paying more” (Miller and Hohenegger 2018, 15).
On the other hand, some relatively small brands have instituted living-wage considerations. The Alta Gracias factory in the Dominican Republic, initially owned by the brand Knights Apparel, started paying a living wage to its workers (Adler-Milstein and Kline 2017). Being a small brand without price-making power (such as Nike would have) Knights Apparel had to stay competitive by process improvements to increase productivity. Two other small European brands which have some price-making power (as they serve niche markets), have also introduced living wage calculations into their supplier costs. Since they only utilize a portion of the production capacity of the two factories they collaborate with in India, they make proportional payments that are distributed among all workers in the two factories. The extra costs are covered in two ways. Continental, the UK brand, added a premium to products made with living wages, explaining the mark-up in the label. Nudie Jeans, a Swedish brand, took a cut from its profits to pay for the higher wages (FairWear Foundation 2016).
This increase in minimum wages was not due to market compulsions. In fact, market compulsions would have worked in the opposite direction of paying only the market wages. They were carried out because, “… it is the right thing to do” (Egels-Zander 2015, 121). Egels-Zander also thinks that, “By challenging the status quo and evoking resistance, SMEs can potentially trigger changes in GPN governance” (121).
The limitation of such individual firm interventions is that there is no guarantee that they will continue. A change in the board may result in a different management strategy. There is neither any legal compulsion nor a market requirement to continue a living wage pilot. Useful as a pilot is in setting an example and showing that it can work, scaling it up to industry level requires something that affects all brands and buyers across the industry.
Before going on to discuss possible industry level action, we will discuss two other ways in which firms can be nudged to “do the right thing”. These are a) the possible role of public procurement and b) the actions of ethical consumers and shareholders.
- Public Procurement
Public procurement does not have to follow the market logic of minimizing costs. It can be carried out with a view to achieve an ethical commitment to living wages, while keeping production efficient. There is scope to extend pressure for the ethical sourcing of publicly procured garments. Public procurement is large and annually amounts to about EUR 1000 billion or an average of 12 per cent of GDP across OECD countries (OECD 2017, quoted in Martin-Ortega and O’Brien 2017, 69). This is a large amount of procurement, so moving it to being carried out on a living-wage basis could have a big impact and set a standard on the global market. However, public procurement has been conducted with the primary objective of the achievement of value for money, which contradicts the secondary objective of promoting social and environmental objectives (Martin-Ortega and O’Brien 2017, 70).
The ILO has Convention No. 94 and Recommendation No. 84 which require public buyers to secure the observance of socially acceptable labour standards. These, however, apply only to the national sphere. New initiatives, such as those of the European Fair Trade Association and Swedwatch, have sought to extend this respect for labour standards to the international level (Martin-Ortega and O’Brien 2017).
Some U.S. cities have made such an extension of living wage standards to international suppliers mandatory. San Francisco’s Sweatfree Contracting Ordinance requires contractors and sub-contractors to ensure a living wage adjusted to the country’s level of economic development and Purchasing Power Parity Index (PPPI).
(Personal Communication with Nicole Vander Meulen of the International Corporate Accountability Roundtable, ICAR). The cities of Madison (Wisconsin), Los Angeles (California) and Milwaukee (Wisconsin) also have living wage requirements in international production. Whether and how this has been implemented, however, is not clear. At this point what is important to note is the intent in their policies and ordinances.
- Ethical Consumers and Pressure on Big Brands
One of the first push-backs against the power of brands in GVCs was due to ethical consumer movements, chiefly those of student consumers on college campuses in the USA. Rejecting the argument of brands that they had no responsibility for labour conditions in outsourced, contracted production, they forced the introduction of labour standards into the supply of college-branded apparel.
Campaigns and media exposure of sweatshop working conditions threatened non-complying brands with reputational risk. These have had some substantial effects, such as on the non-employment of child labour in factories and general payment of minimum wages. Current campaigning is trying to extend the pressure to living wage standards.
The pressure of moral movements can be extended to large pension funds that are investors in many brands. These large pension funds as investors can bring to bear substantial pressure through threats to withdraw investments from brands that do not include living wages in their cost calculations.
Paying a living wage would not make much of a difference to the profits of these corporations and their owners. The founder of Zara is now one of the ten richest persons, of course all men, in the world. So why do they not “do the right thing”? In the current era of financialization, publicly traded companies are faced with the market constraint of sustaining their share values on the basis of very short-term quarterly results. Private companies, however, do not face the same constraints and can be more subject to ethical consumer movements to provide for living wages. Additionally, companies with some price-making power, who can cover increases in costs through cost-plus pricing, can also be subject to the pressures of moral consumer movements.
There are two kinds of pressures to which brands can be subjected. One is that of the moral consumer and moral shareholder movements in the headquarter economies. The other is that of trade unions—local, regional and global—in the supplier economies. We have already referred to the positive roles played by moral consumer movements and the likely damage caused by the exposure of sweatshop conditions to reputation-conscious brands. These exposures need to not only bring out the human rights’ violations in sweatshop conditions, but also the implications of low wages on workers’ health and well-being. As pointed out earlier, for women, low wages with high levels of overtime and poor working conditions, along with their burden of unpaid domestic work, lead to a mining of mainly women workers’ bodies. The exposure of such mining of women workers’ bodies raises the ethical issue of the manner in which women workers are treated in apparel GVCs. Rousing the moral conscience of society in headquarter economies is important to bring pressure “to do the right thing”.
Obviously, trade unions are also important for creating pressure for setting up and implementing living wage standards. The global garment industry has created major pockets of worker concentration in supplier countries—for example, the East Coast of China, Phnom Penh in China, Hanoi in Vietnam, Dhaka and Chittagong in Bangladesh, Tirupur and the Gurgaon-Faridabad-NOIDA region in India, and so on. Such concentrations of supplier factories have the possibility of strengthening the associational power of workers through unions. In addition to traditional unions, there are also associations of women workers organized by feminist groups of various persuasions. When they are combined in regional associations such as AFWA, or on global unions as part of IndustriAll—the workers’ associational power is further multiplied.
However, in a situation of a surplus economy, or one with a permanent reserve army of labour, one cannot count on union pressure to raise wages. Setting up living wages as a normative standard delinks the living wage from the strength or otherwise of trade unions.
- Binding Agreements
A major problem in achieving living wage standards is that brands are not subject to legally binding agreements to prices that would enable living-wage payments by suppliers. The “jobbers’ agreement” in New York a hundred years ago was just that—a legally binding agreement on supplier prices and workers’ wages between brands, suppliers and workers (Anner, Bair and Blaisi 2014).
Most agreements on labour standards, including the Global Framework Agreements (GFAs), have been indicative rather than binding. A breakthrough with binding agreements was achieved in the post-Rana Plaza tragedy in the Accord of Fire and Building Safety in Bangladesh. This agreement, mainly by European brands, had legally binding commitments to provide money for upgrading factory building infrastructure in Bangladesh. This could be a precedent for moving on to legally binding agreements on wage and other labour conditions. A number of brands have come together with IndustriAll, committing themselves to business practices enabling living wages. Such agreements should be legally enforceable under national laws (IndustriAll 2017).
Such agreements would also require a redressal mechanism. In the words of the UN Guiding Principles on Human Rights and Business, there needs to be a mechanism to “remedy” violations of agreements on human rights, in this case living wages. This would bring a fourth party to the process. This can only be the ILO; an ILO, however, with stronger powers to remedy violations (Nathan 2013). If the world can have an International Criminal Court, why can there not be an International Labour Court? With the globalization of production through GVCs, the national framework has become woefully inadequate to deal with trans-national violations of workers’ human rights. The globalization of economic processes has proceeded far in advance of any regulatory or governance mechanism of GVC economic affairs (Gereffi and Mayer 2006).
- A GVC Tax for Redistribution
We have seen that some redistribution of income within a value chain is needed in order to advance from minimum-wage or market-based wage costing to a living-wage costing. While moral consumer movements in headquarter economies and trade unions in supplier economies are applying pressure for such an advance, the market-based mechanism of short-term valuation and the monopsonistic power of brands together obstruct such a move. In the long term, the economic development of supplier economies is likely to push up wages, but should we wait for such a long-term development?
Given the monopsonistic power of brands and the failure of global governance to address its consequences, one can propose a GVC tax for redistribution, as suggested by Srinivasan Iyer (Personal Communication). This would be a tax to be paid by brands that do not include a living wage in the prices paid to supplier firms in proportion to the difference between existing and living wages.
Obviously establishing and administering such a tax would require the very global governance system that is not in place today. However, conversations about such a GVC or extreme labour arbitrage tax could yet take place, just as there is discussion of a Tobin tax on international financial flows despite no such mechanism existing for its implementation.
As mentioned above, a tax equivalent to the doubling of wages in supplier firms in India would reduce the advantage from labour arbitrage from the notional $29 to $28. This is not of such a magnitude as to end the GVC-based growth of employment in supplier countries. That, of course, is not our objective. The tax would be sufficient, though, if redistributed to workers in supplier firms, to advance to living-wage employment conditions. It is also likely that such a tax would result in a rise in product prices and thus reduce consumer surplus in the headquarter economies.
Living wages in, say, China or Turkey would be much higher than in India or Bangladesh, given the difference in the levels of development between these two sets of countries. Thus, a GVC-tax based movement to nationally determined living wages would not eliminate competitive differences between supplier countries at different levels of development. While redistributing a small portion of the value currently captured by brands, it would, however, be a major move towards decent work in garment GVCs.
Accepting that labour power is not a commodity like other commodities and that its price or value should not be entirely decided by market conditions, governments around the world have enacted minimum wage laws. Advancing from such minimum wages to a living wage-based minimum wage is a step in the same direction. It is a step recognizing that the objective of employment should be to provide a decent wage, providing an acceptable standard of living, and eliminating the mining of workers’ bodies (especially those of women—something very prevalent in garment GVCs). Where binding agreements based on living wages between brands, suppliers and workers are not established, one can consider a GVC tax, based on the difference between living and minimum wages, as a way to secure the redistribution of income within the garment GVCs needed to pay living wages.
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