Comment: Why it is all about the cost of labour!
It is well-known that sourcing decisions are not simply based on labour costs. But a comment piece on just-style earlier this month has prompted Doug Miller, Professor (Emeritus) of Worker Rights in Fashion, to hit back with his own analysis of the real wage cost of clothing – and what he believes is the gross undervaluation of garment assembly.
As someone with both an academic as well as practical interest in the issue of labour cost, I owe David Birnbaum a debt of gratitude for the work he has done in helping us understand the mechanics of costing in the global apparel industry and why sourcing decisions are not always based on labour cost alone.
My interest in labour costing, however, has developed from a somewhat different perspective: as part of an exploration of how a living wage might be implemented in an internationally outsourced multi-buyer make-to-order industry, and from a sense of moral outrage at the super exploitation and gross undervaluation of garment assembly in particular.
I have to confess that some of this outrage boiled to the surface upon reading David Birnbaum's latest comment on just-style: 'It's not about the cost of labour'.
In this piece he makes some slick calculations to demonstrate why labour cost is not the most crucial factor in buyers' sourcing decisions by comparing labour costs in Bangladesh with the US and then China with Mexico using the example of a pair of adult jeans.
We have known that sourcing decisions have not been simply based on labour costs for a good while - thanks in part to David Birnbaum's insights. But what disturbed me in this comment was the loose use of figures and concepts in determining the real wage cost of garments and how this perpetuates the devaluation and misrepresentation of labour in the industry.
I am going no further than his little calculation of labour costs in Bangladesh - the starting point of his analysis:
A worker in Bangladesh...
- is paid, at most $75 per month;
- is not particularly efficient, requiring about 18 minutes to produce one man's/woman's pair of denim jeans, which works out to 2400 jeans per annum.
- The average FOB price of a made-in-Bangladesh jeans is $7.99.
- Worker's output = $19,165.35
- Worker's annual wage = $900
- Worker produces 21.3 times his wage
Let us take apart some of these figures piece by piece.
- is paid, at most $75 per month;
US$75.00 is equal to BDT6,134.25. I challenge David Birnbaum to find me a women machinist (80% of workers in the RMG are women) who is earning this wage for a 48 hour week.
- is not particularly efficient
assembly line efficiency is not the same as worker efficiency. Line efficiency is dependent on good management, modern machinery and good workplace layout and decently trained workers. Labour efficiency is such a perjorative term.
- requires about 18 minutes to produce one man's/woman's pair of denim jeans
a standard minute value (calculated by GSD) on a 5 pocket adult pair of jeans is 20.737 minutes (at 100%). This should allow for a rate of working which enables up to 30% above the minimum rate to be earned in payment by results bonus and provide a relaxation allowance. Buyers and manufacturers are generally happy at achieving an efficiency level of 75-80%. At an efficiency of 75% this would take 27 minutes. Our Bangladesh workers are super-efficient.
- works out to 2400 jeans per annum
I don't know how this figure has been arrived at. At 18 minutes per pair, a worker should produce 4 times this number (excluding allowance for Eid and annual leave). 3.1 pairs an hour in a 260 hour month (10 (hours) x 26 (days per month) x 12 = 9672 pairs of jeans per annum!
- The average FOB price of a made-in-Bangladesh jeans is $7.99
I would not dispute this figure since it is an average, but perhaps comment that in some UK supermarkets jeans made in Bangladesh retail at $6!
FOB is made up of the fabric cost plus CMT, of which one (note the cheapest) element is generally the labour cost.
The key question that nobody seems to be asking is what is the cost of 18 labour minutes in Bangladesh? Even at the spurious monthly wage figure of $75 - if a worker works 26 x 10 hour days a month, the hourly wage cost is just $0.22. The labour cost for our jeans at 3 per hour is thus an outrageous US$0.07.
- Worker's output = $19,165.35 (2400 x $7.99)
At one level David Birnbaum is correct to calculate the value of a worker's output using the FOB because, let's face it, if there is no assembly there is no ex-factory value! At 9762 units rather than 2400, a worker produces $77, 998 in FOB value. However at an annual wage of $600 (based on an average of $50 per month) a worker is producing 130 times more than they cost and not 21.
This is not the real kicker though. The real kicker is the $0.07 labour value in a pair of jeans retailing back in Europe and the US for anywhere between $5 and $150.
And we wonder why industrial relations (such as they exist) in the Bangladesh ready-made garment sector continue to unravel. I guess because buyers continue to be preoccupied with margins rather than Millenium Development goals.
To see other articles in the debate on just-style about labour costs in Bangladesh, click on the 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
- Why Inditex is "clear winner" in fast fashion
- Why fast fashion isn't a case of one size fits all
- Brexit blow to global apparel industry confidence
- Sir Philip Green blamed for the collapse of BHS
- TPP tariff phase-out guides Vietnam sourcing plans
- VF Corp cuts guidance as Q2 profit plunges 70%
- Vietnam mulls wage freeze to boost competitiveness
- US Q2 in brief - Carter's, Wolverine Worldwide
- Teijin launches polyester hook-and-loop fastener
- Ethiopia opens flagship textile and apparel park
- Central America strategic sourcing review - a focus on Guatemala, El Salvador and Honduras
- Southeast Asia strategic sourcing review – a focus on Cambodia, Vietnam and Myanmar
- World Textile and Apparel Trade and Production Trends: the EU - June 2016
- Primark Stores Limited: Retailing - Company Profile & SWOT Analysis
- Global market review of lingerie - forecasts to 2020