‘Behind the Seams’

Date: September 6, 2013

‘Behind the Seams’

When it comes to the world of garments, people often think of a large group of low-end workers diligently working in a third-world factory to produce clothing for garment firms in Europe and the USA. It is true that due to the industry’s labor-intensive nature, many garment-manufacturing firms use overseas contractors to make garments at lower labor cost. These factories, mostly located in developing countries, are known for maintaining low wage levels.

Today, almost three-quarters of the world’s apparel exports are made in developing countries. China is at present the top exporter in the world of garments, followed by Italy and Bangladesh. According to statistics announced by the Worker Rights Consortium, an independent labor rights monitoring organization, Bangladesh has the lowest wage rate, with the average worker earning the equivalent of 24 US cents an hour, followed by 45 US cents in Cambodia, 52 US cents in Pakistan, 53 US cents in Vietnam and US$1.26 in China.

Call for a raise

Historically, a minimum wage was set to ensure that workers received adequate income to cover their basic living needs, while providing income security for them. Now, many developing countries where most garment factories are located have already set an official minimum wage rate for workers; but more people doubt whether the current minimum wage for factory workers can give them an acceptable standard of living. In fact, there has been a lot of discussion over the years about raising the legal minimum wage for these low-wage and low-skilled workers in third-world countries. The wave of strikes called by garment-factory workers across developing countries, and a recent protest in Cambodia over pay at a factory making clothing for Nike, has further raised worldwide concerns over low wages and poor labor conditions in the garment sector.

What’s the impact?

With the increasing awareness of labor rights and the importance of corporate social responsibility, firms are expected to implement responsible labor policies, including paying a fair wage to workers. Therefore, more people are calling for an increase in the legal minimum wage, which has in turn generated widespread discussion on its impact on both garment workers and apparel firms.

Decline in employment

Despite the vocal calls for protecting the rights of low-paid garment workers, economists often frowned on the minimum wage as it may reduce demand for workers, resulting in a fall in employment. A minimum-wage increase prompts firms to substitute the affected higher-wage workers with labor that does not receive the minimum wage increase, or reduce the number of workers employed to lower costs, thus causing fiercer job competition among low-skilled and inexperienced workers with little to zero education. With a higher minimum wage enforced, more expensive labor might create reluctance to hire in the formal economy and push firms, particularly those who hire low-skilled workers, to either increase their capital-labor ratio or shift to the informal sector in which wages are not regulated.

Increase in labor costs

Raising the minimum wage will certainly lead to a labor-cost increase. As such, firms may have to offset the increased production cost by restricting benefits to workers or reducing the number of work hours. When it becomes more expensive to pay workers, it is also reasonable to see firms exploring new lower-cost locations and starting to move production to such locations, such as second-tier cities or remoter areas where firms can take advantage of cheaper migrant workers.

A boost to worker morale

Besides the widely discussed potentially negative effects, raising the minimum wage also offers a number of advantages to both firms and garment workers. From an employer’s perspective, maintaining efficiency and productivity helps to avoid higher production costs as a loss of efficiency means a loss of production time. And firms that merely pay workers the minimum wage will more likely face the problem of low morale, reduced productivity and efficiency compared to firms that pay a higher wage. As workers who command a higher wage are usually more responsive to an employer’s work demands, we can see that a pay rise is definitely a good way to improve worker morale, which will directly affect workers’ productivity.

Employer branding

The increasing concerns over labor rights and work conditions in garment factories are prompting firms to squarely face the minimum-wage issue and develop robust labor policies. In fact, fair-pay policies help to enhance the reputation of a company as a fair, ethical and responsible employer. As nowadays greater emphasis is put on corporate social responsibility, paying factory workers a higher minimum wage can also be seen as a means to enhance branding as it greatly bolsters a firm’s image and hence increases customer satisfaction.

Higher purchasing power

From a garment worker’s perspective, a minimum wage increase is absolutely good news to them as it means they will have more money in their pockets to support their families and improve their quality of life. In the meantime, when workers have higher incomes, this implies that their purchasing power is enhanced – a boost to consumer spending. When consumer demand grows, business thrives, so there will be more profits for business.

In closing, different parties have expressed mixed views on the minimum wage issue. No matter what the effects of a minimum wage hike may be, it brooks no delay for firms that source clothing from garment factories in developing countries to review their pay policies and make sure workers are treated fairly, as the outside world (including customers) is paying ever-increasing attention to labor-rights issues.

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