The worlds over big brands are grappling with the challenge of living wages. Regina Henkel looks at the issue and reports why they are so difficult to implement.

 

It sounds quite simple. You pay the factories in Bangladesh or any other low-wage country only a few cents more per article, and the exploitation of people in the global fashion industry would stop immediately. These few cents more would seriously harm neither brands nor retailers, and consumers either. Yet, the garment industry has been perceived by critics as a slave industry for years, and there has not been any significant improvement in the state of affairs.

 

But today, many brands are willing to change their sourcing strategies. Yet, what sounds easy in theory turns out to be a very big challenge in practice. That's because it is not just the so-called eco-brands that are the ones committed to fair production. There are several projects and even more declarations of intent in which even commercial fashion brands/retailers have expressed their commitment to fair wages. Only in April, H&M again expressed its goal: by 2018, the company wants to have paved the way towards introducing fair wages for all its strategic partners in the supply chain.

 

That is not to say that from this point the higher wages must be actually paid. First, it enables the implementation of new structures and processes that will allow such wages. Since 2013, H&M has been working on the implementation of its living wage programme. Also, Dutch denim label Nudie in 2011 initiated a project at a factory in India that introduced fair wages there. Nudie is still producing from this factory and has found more supporters that share their contracts there. A recent example is that of British t-shirt specialist Continental Clothing, which is working with Zurich business consulting agency BSD Consulting and the Fair Fashion Network on the implementation of fair wages.

 

But except for individual projects, so far nothing really has happened. Why does it take so long?

 

The lack of understanding and trust

"Empirical studies have shown that the implementation of living wages is very complex and difficult," points out Mark Starmanns, who has for years been engaged with sustainability and fairness in the global apparel industry. He advises companies in sustainability management, and is a lecturer at the University of Zurich, besides being one of the initiators of Get Changed! The Fair Fashion Network. For Continental Clothing, he is working on the implementation of living wages at a factory in India.

 

"It starts with the fact that in factories the understanding of such issues is missing because the local minimum wages are set by the government or the industry, and in some cases they are even mutually agreed upon by the government, industry and trade unions," says Starmanns. Most companies comply with the requirements for a minimum wage, but according to what NGOs declare as a minimum wage, these are far below what people really need. Governments have no interest in increasing this minimum wage rapidly. Finally, low wages function as a lure for international investors.

 

In addition, factories often lack the confidence to reveal their calculation to clients. But that would be necessary to estimate how much more a living wage would cost a client. The situation is aggravated by the fact that the fashion industry has exerted strong pressure on suppliers in recent years. Production costs are crucial in the fashion business, and factories with high costs risk losing customers. Anyone who has introduced higher wages at the request of customers cannot go back again as soon as the portfolio of customers changes. Therefore, it is always a big risk for an apparel factory to pay higher wages. At the same time, brands cannot check whether additional payments really arrive at the workers' end. A living wage project can therefore succeed only with a long-standing and trusting relationship between the business partners.

 

And one last problem: of course, it is useless if only a single client wants to pay higher prices to meet better living wages. The smaller its order volume, the more difficult are the possibilities of better payments for workers. To reach that goal, buyers have to unite and work together to achieve more.

 

What is a living wage?

It is just as difficult to establish the level of a living wage. Governments, trade unions, scientists and NGOs end up with very different results for different regions. One of the most prestigious institutions fighting for living wages is the Asia Floor Wage Campaign, under which about 70 Asian NGOs, trade unions and scientists have come together to work out a common analytical model.

 

Nevertheless, their data is debatable. An example is the question of how many people have to feed a salary: a family of four, where only one adult works, or is it normal for both adults to work? And it goes even further: "Until finally to the question of how many calories a person needs per day, and whether a factory worker should be able to finance a college education for his children?" says Starmanns. So, determining the level of a living wage is far from being easy.

 

That's why the Fair Wear Foundation (FWF) recommends not to predetermine the amount of the living wage, but to work it out individually per factory and in collaboration with workers, unions and the factory management. The FWF is one of the most well-known NGOs working in this area. Based in the Netherlands, the organisation has set itself the task of improving working conditions in the global fashion supply chain. Its members-including brands like Acne, Nudie, Filippa K, Odd Molly, Armedangels, Schoffel, Stanley and Stella, Switcher, Mammut, Vaude and even Takko- sign a commitment to increase the wages in their global supply chain successively to a living wage level.

 

It is not that each member already pays such wages. This misunderstanding is widespread, and also applies to the new Fair Trade standard that allows members to raise their wages to a subsistence wage level within six years. The reason is obvious-wages are a complex, time-consuming issue that just cannot be improved quickly. One who really wants to drive change must minimise the barriers for entry in order to motivate a maximum of brands and manufacturers.

 

A cost example

Actually, the figures speak for themselves. Take the example of FWF's report Climbing the Ladder. The report points out that a t-shirt that is produced in Thailand and sold in Europe for ¤29, contains only ¤0.18 in wage costs. Other studies come to a similar conclusion. In general, labour costs comprise about 2.5 per cent of the retail price, depending on how complicated the production is. If these wage costs at the beginning of the supply chain are brought to a living wage level, then the labour costs per t-shirt in this example increase by only 0.45 euros.

 

Now, however, the current calculation model in the garment industry works with percentage. That is, if the costs at the beginning of the value chain are altered by a certain percentage, then all subsequent following costs change too. This applies to the trade margin as well as for VAT. The price of a product can easily be more than twice as high as before. But, why should retailers and even the state earn more money when wages in production countries are raised? The FWF has developed new calculation models with which this multiplication of impact can be prevented. These calculation models, in the retail price of our example, increased by only about one per cent to ¤29.27.

 

The same is true for Continental Clothing. At their current Fair Share project in India, a t-shirt comes to ¤0.14 in wage costs. In order to raise the wages, Continental Clothing paid 0.14 cents more for each Fair Share t-shirt. Thanks to a special calculation, the trading price of the t-shirts increased only by about the same amount. Right now, Continental Clothing is presenting the project to its customers (mainly B2B customers). "The goal is," says Mariusz Stochaj, head of product and sustainability at Continental Clothing, "to enforce living wages in the entire supply chain."

 

Future task: More productivity

Nevertheless, it cannot be assumed that the consumer is willing to continue to accept significant price increases in fashion. On the other hand, the thirst for cheap labour has not dried up either. Bangladesh and Vietnam are among the cheapest production sites in the world, but it is still far cheaper elsewhere-Ethiopia and Myanmar, for instance. In Ethiopia, the labour costs are less than half than in Bangladesh. Africa is considered the new Asia, and the disasters of recent years in Bangladesh have meant that the minimum wages there were set high.

 

But if consumer prices do not rise, how should living wages be paid? "Primarily through increased efficiency," answers Margreet Vrieling, head of verification at FWF. "The problem in countries such as Bangladesh is the extremely low productivity. The low wages have been compensating the low productivity, and they do not create an incentive to invest in productivity." In countries like China, the transition to more productivity has already started. Due to the high labour costs there, the country has already begun investing in more modern machines and streamlined processes.