To ensure success, workers must be involved in a living wage pilot project

To ensure success, workers must be involved in a living wage pilot project

While there is no single, simple solution to help garment brands and retailers progress from paying minimum wages to living wages to workers in their supply chains, feedback from those companies who have already made the move is a good place to start.

Indeed, this is the goal of the 'Living wages: an explorer's notebook' from the Fair Wear Foundation (FWF), which offers concrete guidance on piloting living wages in garment factories, including how to select a factory partner, collaborate with other brands and set the target wage.

And five front-runners – including Nudie Jeans, Continental Clothing Company and Albiro – share their experience of how they managed to increase workers' wages by effectively involving them in the process.

What is a living wage? FWF defines it is an amount that allows workers to meet their basic needs in a normal work week. That said, it advises using the term 'target wage' rather than 'living wage' in wage pilots. A target wage refers to the wage that is agreed by workers, management, and the brand(s) as the wage floor for a factory for a given time period, such as a year. 

Obstacles that stand in the way of living wages:

  • Lack of collective bargaining. The best wage is a negotiated wage, set by businesses and workers together. But in major garment producing countries, productive dialogue between workers and factories is far too rare. This lack of dialogue is a key roadblock to better wages for workers.
  • How much is a living wage? A living wage should cover "basic needs and some discretionary income," according to FWF's Code. But (how) can that be translated into an exact number?
  • How much do living wages actually cost? In many instances, wages will need to be doubled, tripled or even more to achieve living wage levels. How will that affect prices?
  • Low productivity. Low wages, low costs and low productivity – they are part of a vicious circle. Can increased productivity help break that circle?
  • Need for real-world examples.
  • Competition law. Brands cite competition law as blocking real collaboration to raise wages in factories. What exactly are the risks and how can they be avoided?
  • How to get the money to the workers? If consumers or brands pay more, how can they be assured the extra payment reaches the workers who make the garments?
  • Gender discrimination. The vast majority of garment workers are young women, who are vulnerable to underpayment, harassment, and gender-based violence at work. Often such treatment is linked to the squeeze on garment pricing. How can wage improvements address gender inequality and vice versa?
  • Garment industry structure and practices. Various aspects of the garment industry (such as limited leverage in factories, short-term contracts, and mark-up costing) block progress. How do we work around them?

Different approaches to living wage implementation:

  • Analysing the cost implications of higher minimum or target wages – for example, for factory costs, FOB, and retail price. One way to do this is to use FWF's labour minute costing methodology.
  • Consulting with local unions, workers, and management to set a target wage for a factory or cluster of factories.
  • Training and coaching to develop workers', managers' and your own brand's capacity to negotiate effectively together.
  • Signing a collective bargaining agreement with a local trade union and your supplier(s) to raise wages in one or more factories.
  • Seeking methods to ensure that wage increases do not have a multiplier effect on pricing up the supply chain.
  • Raising your brands' spending on FOB across the board (for example, by 1% across several or all styles/collections); then allocating the increased budget to living wage experimentation at selected suppliers.
  • Exploring improved productivity – in factories and within your brand – and its link to higher wages.
  • Raising wages in collaboration with other FWF members – or other brands – in selected factories.
  • Making consumers part of the solution on wages, for example, through marketing that features wage efforts, or consumer pricing that transfers living wage funds from committed consumers to workers.
  • Exploring a 'cluster' or regional approach to raising wages in collaboration with other brands and stakeholders.
  • Joining in multi-stakeholder efforts to raise minimum wage levels in production countries, as seen recently in Bangladesh and Cambodia.

Project groundwork:

  • Involve workers in a living wage pilot project. Experience also shows factory-level wage improvements only last when workers are actively involved in the process.
  • Pilot locations. Work with factories where the working relationship is expected to continue for at least five more years. Ideally, the volume at the pilot site would grow as collaboration improves year on year.
  • Prepare your brand. Getting support from the CEO and other senior managers is critical since the commitment to pay higher wages has cost implications. There may also be consequences for relationships with certain suppliers as well as retail prices.
  • Establish a budget. Based on pilot experience, it is very helpful to have a general sense of how your brand will cover the costs of wage increases before approaching potential factory partners.
  • Ensure staff resources are available. A successful pilot project will require additional staff time and resources. Negotiations with factories, workers, and other brand departments all require extra time, especially at the start of the process. Brands may also want to bring in outside consultants to help develop their pilots.

Introducing 'the living wage factor':

The 'living wage factor' (sometimes called a 'living wage premium') represents the cost difference between current wages and the new living wage/target wage. This concept can be applied anywhere in the supply chain to measure the costs of implementing higher wages.

  • For WORKERS it is the difference between their old wages and new wages after a wage increase.
  • For a FACTORY it is the difference between current labour costs and labour costs associated with target wage payments.
  • For a BRAND it is the additional amount paid (for example, per garment) to support payment of a living wage.
  • For a CONSUMER it is the amount by which retail price increases in order to support payment of a living wage.

How to ensure workers receive additional wage payments:

The most important component of any living wage pilot is actually getting more money to underpaid workers. Below are some tips for distributing wage improvements:

  • Living wage (or 'target wage') payments are wages, so they should be distributed as part of the normal wage payment.
  • These payments should always be included on wage slips.
  • For verification purposes, additional payments should be listed on the payslip as separate and distinct from other wage payments – for example, base rate pay, overtime, etc. If more than one brand is contributing additional funds to target wages, each brand's payment should be listed separately.
  • For the first set of payments and periodically thereafter, it is important to hold worker information sessions to explain additional payments that appear on payslips.
  • Ideally all categories of workers should be included in wage distribution (for example, cafeteria workers, cleaners, and security staff).
  • Ideally brands should make wage payments with each purchase order.

While the FWF concedes there is no single path to perfect results, its experience suggests working around roadblocks to living wages is indeed possible.