Comment: Apparel costing for a living wage
The vexed question of a 'living wage' continues to tax some of the major apparel retailers and brand owners. But how can a sourcing company calculate a living wage, let alone ensure its implementation? Doug Miller, Professor (Emeritus) of Worker Rights in Fashion, has some suggestions.
We are about to enter a phase where those companies who are serious about their corporate social responsibility (CSR) efforts will engage in a process of determining what is 'due diligence' in relation to the 'Protect, Respect and Remedy Framework' set out by UN special representative Professor John Ruggie.
One area which is likely to tax some of the major apparel retailers and brand owners is the vexed question of a 'living wage' - which some would define as a wage which meets basic needs and provides some discretionary income.
Some, such as Levi Strauss opted to leave the Ethical Trading Initiative (ETI) rather than commit to a code element which they believed was practically unachievable.
Others, no doubt anxious to appear to be addressing the issue, have commissioned studies to define a living wage or have signalled to stakeholders that they are prepared to work with some of the more recent tools such as the NGO/trade union backed Asia Floor Wage approach, the Wage Ladder (recently developed into an online tool by the Dutch Fair Wear Foundation), or the more recent Fair Wage Network sponsored by the Fair Labor Association.
However these are in essence all benchmarking tools, and none of them actually provides a sourcing company with a method for the actual implementation of a 'living wage' increase. As a contributor to this global debate on the implementation of a living wage over the last few years I have come to make a number of realisations:
- The best qualified people to determine a living wage are not academics but those people who work in the industry and in country. Buyers in search of a benchmark would do well to fix their sights on the trade union demands at national minimum wage determinations, which in some countries are set at a poverty wage level and in some cases continue to be deferred.
- Unless a sourcing company wholly owns a facility, it is impossible for a retailer or a brand owner to pay a living wage since they are not the employer and, along with a number of other buyers sourcing from a particular facility, only contribute to a supplier's revenue from which the apparel worker's wage is paid.
- Sourcing companies can only effectively cost for a living wage in the manufacturing charge or CMT price they negotiate with their suppliers.
- Evidence would seem to suggest that precise costing of the labour element in the CMT equation (the other variables being factory overhead and supplier profit) to ensure code compliance is not a common practice on the part of buying firms. To quote from Daniel Vaughan Whitehead's recent book 'Fair Wages', pay has become "the residual variable" at factory level.
- It is possible to cost for a living wage by calculating the difference between average earnings (exclusive of overtime) and earnings based on the previous/current trade union living wage demand. This must be done, however, on a unit cost basis per consignment.
- The labour unit cost for a specific category of apparel can be calculated by multiplying its actual minute value by the 'living wage' labour minute value.
- Since the actual minute value of an apparel item is likely to vary in relation to its standard minute value, line efficiency is likely to become a crucial issue.
- Since initiatives to address line efficiency can impact on worker performance and effort levels, workers need to be properly represented in their introduction and implementation.
- Some UK retailers (Marks & Spencer for example) have begun to make provision in their costing for a living wage in countries such as Bangladesh, but are seeking to generate more funds for wage increases by engaging in efficiency projects with their manufacturers.
- There are isolated examples - the most prominent being the Alta Gracia factory in the Dominican Republic - where the brand owner (Knights Apparel) has committed to paying the workforce a living wage via a collective agreement with a recognised trade union. Knights Apparel, however, wholly owns this factory.
- Concerted efforts will be required in multi-buyer facilities since issues of equity and assurance in workplaces with an absence of collective bargaining are likely to frustrate a costed living wage initiative.
- Since labour cost is but part of the overall price, legal opinion should be sought on the anti-trust/competition law ramifications of such efforts.
Meanwhile here is a 'provocation' for a company serious about costing for a living wage:
Step 1: Cost out the prevailing unit labour cost on the garment you wish to source based on an agreed actual minute value in the supplier's facility. Enter this in the commercial contract in the same way that the price of the fabric is contractually itemised.
Step 2: Determine the difference between the prevailing labour minute value and a 'living' labour minute value as derived from the most recent coordinated national trade union living wage figure.
Step 3: Set up a special account and deposit the value of difference x the number of units ordered. Allow this to accrue along with any repeat or new orders over the financial year. Towards the end of the year notify the workers and management in the factory that an amount is available for distribution on to the wage, but that in order for the workers to access this amount they must organise themselves to negotiate with management how this is to be distributed.
Step 4: Work with the supplier to appraise workers of their right to freedom of association by issuing them with a written right to non-victimisation guarantee in line with the buyer's code of conduct/ILO conventions.
Step 5: Money is transferred by the buyer to the supplier's account on sight of a signed, and gazetted collective agreement.
Taking these bold steps might just demonstrate due diligence - not just in respect of a living wage but also in respect of freedom of association and collective bargaining which are sadly lacking in the apparel industry.
Two see the first three articles in this discussion on the cost of labour, follow the headline links below:
Doug Miller, Professor (Emeritus) of Worker Rights in Fashion, formerly School of Design, University of Northumbria.
An interactive databank with intelligence on the major apparel sourcing countries
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