Asia Floor Wage
People’s Tribunal on Living Wage
Cambodia
February 5-6, 2012
Asia’s place in the
Global Garment Industry
the One-World Employer
•
Asia the largest recipient of foreign investment also holds the largest
workforce and represents most of the global working poor. Women
comprise an increasingly significant proportion of the global working poor
•
Before 1960: U.S. imported 5% of its apparel. Today: U.S. imports > 90% of
its apparel from > 70 countries. The ILO calls the apparel industry the “true
one-world employer”
•
Largest concentration for garment production is in Asia; Asian workers have
the lowest wage level. Scale of production, workforce, raw materials,
technology, skills, and wage level, in Asia, cannot be easily replaced
•
Asian labour cost can set a floor to the global corporate race to the bottom
Labour cost of a shirt in
global supply chain
Component
Cost (India)
%Retail Price
(India)
%Retail Price
(Bangladesh)
Fabric
$2.80
12.4%
14.2%
Label/Pkg
$0.45
2.0%
3.2%
Labour Cost
$0.64
2.8%
2.8%
Overhead
$0.59
2.6%
0.9%
Profit to tier1
$0.28
1.2%
0.9%
Wash
$0.15
0.7%
FOB Cost to
Brand
$4.90
21.8%
22.0%
Shipping, duty
$0.75
3.3%
3.3%
Total cost to
brand
$5.65
25.1%
25.3%
Retail price
$22.50
100%
Broader Political, Economic Context: Last Two Decades
• Workers Getting Poorer: Last two decades - wage share has been
declining, indicating that workers are not getting their “fair share” of
economic growth. Global economy grew at an average of 3.3% per
year but annual wage growth was at 1.9 percent every year.
• According to the ILO, proportion of people on low pay (defined as <
2/3 of median wage) increased in more than 2/3 of countries; there
are 555 million working poor, a significant percentage being women
• Growing Inequality: Top most layer (0.1%) in US economy
increased its growth by 10 times but the median family only by 22%.
The income of the CEO of General Motors compared to the average
worker used to be 1:70; today this gap in Walmart is 1:140.
• Roll Back of Hard Won Gains: Precarious jobs overshadow hardwon securities won in the 20th century. According to the ILO workers
in vulnerable employment is1.53 billion workers -- >50% world’s
workers
Arguments against
Raising Any Wages
• This is a bad time -- Economic Downturn
• Consumers will stop buying -- Drop in
Sales
• Business is down -- Loss of profits
• Shareholders will panic
• Factories will close
Decent Work in Asia will help
Global Economic Recovery
Purchasing power of the vast majority is
falling ; workers getting poorer
Financial analyst Richard Duncan argues that
the global economy’s well-being rests
heavily on Asia’s ability to consume more
than it manufactures. He advocates for a
$5 minimum wage for Asia (Jan 2009, Newsweek)
Raising Wages Decreases Inequality &
Increases Purchasing Power
Inequality can grow in one of three ways:
Asia Floor
Wage sets a
floor that
helps bring
the bottom up.
Drop in Sales:
Unfounded Fear
• Scholars have studied whether business expands or contracts during
wage increases and have found the cost to be minimal.
• Scholars show the effect to be less than 1% on sales revenue.
• The AFW is formulated based on the paying capacity of the global
industry whereas national wage definitions are based on the paying
capacity of the national industry.
• Garments’ sales rarely suffer; in fact, research shows that even when
prices rise, sales continue.
• Apparel imports of the U.S. increased by13.5% in January-April 2011
from same period in 2010 and amounted to 23.2 bn dollars.
• US imports of apparel from Asia increased by 8.3% to 29.7% by
various Asian countries.
Garments prices are going down
Garments prices are going down
Wage Increase & Retail Price
One Brand’s Financials
2010 First Half
• Earnings per share were at € 8.48 compared to € 2.92
prior year.
• Earning Before Tax increased by 185,5% to 181 million
• Consolidated sales up by 2.5%
• Net earnings totaled € 44.8 million versus € 38.5 million,
representing an increase of 16.4%.
• Gross profit margin reached 51.3% after 51.1% previous
year.
Previous Cited Hurdles to Delivering
Living Wage
• No consistent, actionable definition
– AFW Formula
• Global North demand, no Asian voices
– AFW Alliance is Asian-led
• Relocation of production
– The AFW Alliance’s regional strategy overcomes the competitive
divisions among Asian countries by a formulation that delivers
living wage without compromising the competitive ranking of the
countries. The Asian labour organisations have developed a
regional bargaining group.
How do we calculate for a fair
and decent living wage for
workers across Asia?
What are the components of a
worker’s WAGE?
• FOOD COST (FC)
• NON-FOOD COST (NFC)
FC and NFC are estimated without subtle internal differentiations,
the goal being to provide a robust regional formula which can be further
tailored by trade unions in different countries, based on their needs and
context.
• WAGE = NFC + FC
Wages and Food
Costs
U.S.
U.K.
France
Mexico
India (urban)
India (rural)
• Poor people in developing
countries spend a large
percentage of their
income on food.
• When food prices rise,
families are able to
purchase less of other
needed goods and
services.
• Women and children are
usually the worst hit.
FOOD
•
•
Varies with local food basket
Different food baskets can be
represented by the common measure of
caloric content (e.g. a meal of 700
calories)
Food in Calories
• June 1999, the Economic and Social Commission for Asia and the
Pacific (ESCAP): “the per capita food intake for survival assumed for
deriving the food poverty line varied...from 2100 calories to 2750
calories per capita per day.”
• 2000 Chinese government statistics plus a study by the Food &
Agriculture Organisation: the calorie requirement of the national
poverty line for China was 2,400 kcal/day (now revised to 2100 kcal),
while that used by the FAO is 1,920 kcal/day.
• 1957 the Indian Labour Conference: 2700 calories for minimum wage
for an adult worker (performing moderate to heavy physical work).
• Most recent, the Indonesian government: 3000 calories as the intake
figure for a living wage for a manufacturing worker .
• The AFW should not result in lowering standards in any country. So
the AFW Alliance agreed to adopt the Indonesian standard.
Question 1:
HOW MUCH OF WAGE IS “FC”?
FOOD Component in Various Asian WAGE DEFINITIONS
(official figures)
(1 adult per day)
INDIA:
2700 Calories
47.48% of WAGE
BANGLADESH:
<=1500 Calories
67% of WAGE
INDONESIA:
3000 Calories
44.22% of WAGE
SRI LANKA:
1900 Calories
62% of WAGE
NON-FOOD
• No agreement on a universal set of non-food
items
• ITEMS: Housing, clothes, healthcare including
maternity care, childcare, education, fuel,
transportation, savings, etc.
• To simplify, NFC items can be expressed as a
common factor of FC. (e.g. NFC of a family as
½ of its total FC).
Question 2
How much of WAGE is “NFC”?
NON-FOOD COSTS in Working Class WAGE as a
factor of FC (official figures)
•
•
•
•
INDIA:
BANGLADESH:
INDONESIA:
SRI LANKA
NFC = FC
NFC = ½ FC
NFC = 1.26 x FC
NFC = 0.6 x FC
Final AFW Formula
• FOOD COST @ 3000 calories food
basket/adult/day for a family of 3
consumption units
• NON-FOOD COST = FOOD COST
• AFW = NFC + FC = 2 (FC)
AFW and the Family
• Living wage definitions normally includes the family. Minimum wage
regulations, by contrast, may (India) or may not (Indonesia).
• The AFW unions decided to base AFW on a family. The AFW
Alliance studied the family sizes in key Asian countries and came up
with a more or less average figure. (e.g. Ministry of Labour in India
calculated the average working class family size to be 4.46 in 2008
and the Ministry of Commerce in China calculated the average family
size in China to be 3.38 in 2003).
• In order to account for childcare costs, the AFW makes it a single
income family.
• The AFW is based on 3 adult consumption units (a child is calculated
as ½ consumption unit). 3 consumption units can be a family of 2
adults and 2 children or 1 adult and 4 children or 3 adults.
Calculate in local currency
• This definition can be used to calculate floor wage levels
for garment workers in different countries.
– Collect information on a daily food basket of 3000 calories,
in each country. This should be based on reasonable and
average market costs
– Multiply this by 30 days to arrive at a monthly cost.
– Multiply this by three ‘consumption units’
– Finally, double it to cover non-food costs.
24
AFW in local currency 2009
Food basket (1 CU) (Foodbasket 3 CU)
Bangladesh
China
Indonesia
India
Sri Lanka
Thailand
1575
193
389200
1282,50
2500
1250
4725
579
1167600
3847,50
7500
3750
FC + NFC
9450
1158
2335200
7695
15000
7500
Taka
Yuan
Rupiah
Rupee
Rupee
Bath
25
AFW and Benefits
• The AFW is a basic wage figure prior to benefits such as healthcare,
pension and so on.
• Delivery of other benefits by employers to workers is not the norm in
the industry; therefore, they have not been made the basis for AFW.
• Even if employers provide dormitory housing or canteen lunch,
workers should have the option to obtain these basic necessities from
the wage and not be at the mercy of the employer for basic needs.
• The AFW provides a minimum living wage with which a worker can
support him/herself and dependents.
AFW and Working Hours
AFW defines the regular work week as a
maximum of 48 hours prior to overtime.
AFW’s definition of a work week and its
independence from benefits sends a clear
message that workers need to earn a
minimum living wage without sacrificing
other humane working conditions.
Compare wage between countries
How to arrive at a common AFW?
Since wage surveys take place in local currencies, we
need to address two main problems:
a. Fluctuating exchange rates
b. Different price levels
28
Purchasing Power Parity
• A meaningful comparison of the national wage surveys
must therefore take into account the different costs of
living and, thus, equalise the spending power of different
currencies.
• A possible solution to these problems comes from the
notion of ‘purchasing power parity’ (PPP).
• PPP can be used to calculate how much money is
needed by a person outside the USA to buy the same
basket of goods that a person in the USA can buy.
29
AFW Figure for 2009 in PPP
The next step is to establish a common AFW figure, based
on PPP$, which can be used in campaigning, lobbying and
negotiation.
A common wage figure thus can only be the result of consensus
among the groups that participate in the campaign
AFW for 2009 is set at 475 PPP$
30
PPP CONVERSION FACTOR
COUNTRY
PPP FACTOR
(2005)
CHINA
3.45
INDIA
14.67
BANGLADESH 22.64
INDONESIA
3934
SRI LANKA
35.17
CAMBODIA
1279
VIETNAM
4713
PPP FACTOR
(2009)
4.2
19.2
31
5375.9
58.9
2086.5
8260.5
Convert AFW consensus PPP
figure into local currency
Convert the common Asia wage figure of 475 PPP$ (for
2009) back into national wage figures.
AFW at 475 PPP$ converted into local currencies
Bangladesh
Cambodia
China
India
Indonesia
Sri Lanka
Thailand
475 PPP$
475 PPP$
475 PPP$
475 PPP$
475 PPP$
475 PPP$
475 PPP$
x 22.64 =
x 1279 =
x 3.45 =
x 14.67 =
x 3934 =
x 35.17 =
x 15.93 =
10754
607525
1638.75
6968,25
1868650
16705.75
7566.75
taka
riel
yuan
rupees
rupiah
rupees
baht
32
AFW in 2011
Country
Bangladesh
Minimum Wage PPP
(in local
Conversion
AFW in local
currency)
factor for 2009 AFW 2011 in PPP Currency
3000
31.04
540
1676
250899.1
2086.5
540
1126710
China-Schenzhen
1500
4.2
540
2268
India
5034
19.2
540
10368
1529150
5375.9
540
2902986
Sri Lanka
7900
58.9
540
31806
Vietnam
1400000
8260.5
540
4460670
Cambodia
Indonesia
MW in PPP
Country
Bangladesh
Minimum Wage
(in local
currency)
PPP Conversion factor
for 2009
MW in PPP
3000
31
96.7
250899.1
2086.5
120.25
China-Schenzhen
1500
4.2
357.14
India
5034
19.2
262.19
1529150
5375.9
284.45
Sri Lanka
7900
58.9
134.13
Vietnam
1400000
8260.5
169.5
Cambodia
Indonesia
Responsibility for Paying AFW:
Brand Power
•
•
•
•
•
•
Brands and Retailers’ financial power is built through the garment global
supply chain.
Brands power is built by their access to high price consumer countries and
low labour cost production countries and by their ability to deny this access to
Asian manufacturers.
Brands and retailers are “manufacturers without factories”, with the physical
production of goods separated from the design and marketing.
Brands have lavish advertising budgets to market their brand
Brands through the use of sophisticated and costly information technology
increase their revenues and lower risks by passing on risks and
responsibilities to suppliers.
Brands and Retailers’ sharing a negligible fraction of their profit can
dramatically raise millions of workers and families out of poverty.
Brands Profit:
Low Prices & Low Wages
Prices that brands pay to the manufacturers in Asia have decreased,
reducing the profit margins of Asian manufacturers, which depresses
the low poverty wages production workers continue to get.
Brand rely on consumers, despite falling income, to buy by depressing
prices and pressing down on wages at the production end.
Much of the emphasis on competitiveness has focused on production
costs and, in particular, labor costs.
Import Price Trends on garments from Non
EU countries into the UK 2000-2009
AFW & Fair Pricing
•
Global sourcing companies pay approximately the same prices to their
supplier factories in Asia: around 25% of the retail price.
•
Garment workers’ wages make up a very small proportion of the final retail
price for clothes – around 1% to 2% – substantial wage rises could be
achieved without increasing retail prices.
•
Scholars have found that brands force supplier companies to operate below
production costs by demanding low prices, therefore causing wages to be
adversely affected.
•
The proposed demand is an Asia Floor Wage for Asian garment workers in
conjunction with fair pricing that would make Asia Floor Wage possible.
Pricing & Labour Cost
•
Doug Miller’s report: A key finding is that fashion retailers are not engaged in
any systematic costing of the labour input into garment manufacture.
•
The imprecise clarification of “labour minute values” and factory efficiency is a
significant factor in the chronic persistence of factory non compliance on
wages and overtime.
•
It is possible to calculate a labour minute value for any garment, which also
incorporates a living wage element.
•
It is possible to determine and ‘ring fence’ the agreed labour cost and to
make this an explicit part of the commercial contract between the buyer and
the supplier, in the same way that fabric is itemised in negotiations.
Price Negotiation
•
•
Ken Loo, General Secretary of the Garment Manufacturers Association of
Cambodia 7.12.2009 : “The buyers nowadays come to us with the
specifications of the garments they want produced.......what generally
happens is that the factories are given a … price as a lump sum value and
the factories are left to manage it as they like. In this case, there is some
haggling and negotiations about providing a longer standard time in order to
get a higher …price. In most cases however, there is just a negotiation to
obtain a higher …price without much reference to the standard times. ... We
are left to manage our own costs and the buyers generally adopt a take it or
leave it attitude when it comes to the price they provide to us.”
Whilst a company like GSD (Corporate) Ltd. which specialises in
predetermined time studies, can report an increase in the number of
manufacturers which are turning to the studies, the number of brands and
retailers using this approach in labour costing and garment pricing is
negligible.
Central Database of Standard Times
•
•
•
•
If a buyer is to engage in sustainable labour costing then a library of standard
times most certainly for generic items will be required
Standard minute values calculated for new styles would need to be added to
the central database
It is important to note that in work study parlance, ‘efficiency’ and ultimately
productivity is the responsibility of factory production management and not
the worker. Scholars have asserted that when the factors associated with
productivity are reviewed, it becomes clear that most .....are of technomanagerial nature
However in the same way that buyers and merchandisers have to keep track
of material costs, so too should they maintain and update a database of
minute values and labour costs for the factories.
Ring Fencing of Labour Cost
•
•
•
•
“Ring fencing” the labour cost would force brands and suppliers to address
the issue of how the factory is operating since the basic minimum wage
would be the same regardless of factory efficiency.
Labour cost is one of the most suppressed costs of production. Other factors
of production include quality of infrastructure, access to raw materials,
technology, energy, transportation, quality of management, legal systems,
etc.
Yet another factor in production costs is the purchasing practices of buyers
which include lead time, quantity of order, advanced planning, etc.
The AFW fixes the labour cost and would reduce the tendency of industry
and government to compete solely on this human factor and turn their
attention to other factors which will bring about efficiency, higher productivity,
better production and sourcing systems and so on.
Transparency
•
•
•
•
•
An initiative involving labour costing will require a high degree of
transparency and openness between sourcing companies and their suppliers
Some buyers insist unilaterally that their suppliers ‘open their books,’ during
price negotiations, a practice which some observers see as naked power play
in an attempt to drive prices down. In such circumstances, it is argued,
suppliers have no other option but to hedge by distorting their figures.
A more cooperative ‘open book costing’ will require integrity measures on the
part of buyers such as price increases, long term supply agreements and the
offer of productivity expertise where available.
Buyers will also require an assurance that the additional amount of money
identified as the living or sustainable wage element in excess of the current
prevailing unit labour costs is reaching the workers.
AFW Alliance has shown willingness to participate in helping branbds to
develop such mechanisms
Brands’ Responses to AFW
•
•
•
•
•
•
AFW is based largely on ideologically motivated assumptions rather than
facts; it imposes a static system which interferes with the normal operations
of a market-driven situation, rather than looking at innovative ways of using
the market to drive issues in that same direction.
The model is too simplistic in the sense that it makes no reference to other
important players in the supply chain by only focusing on one group not
taking into account the consequences this may have to the wider social and
labour environment.
AFW makes a “useful contribution” to the debate on living wage and they are
glad a proposal as been made based on a clear methodology.
They do not feel able to endorse the Asia Floor Wage as they don't believe it
is possible to implement it.
Increasing price is not something they are prepared to consider in order to
implement a living wage; it would damage their competitiveness.
Increasing the labour costs could and should come from increasing efficiency
not increasing prices.
Brands’ Responses to AFW contd.
•
•
•
•
•
•
•
It is not the buyers role to force increases in wages, this has to be decided on
at factory level and through government increasing minimum wage.
At the moment their audits don't gather wage data at all and only record
wages if there is a violation (e.g below minimum wage).
Some auditors are using AFW as part of their wage benchmarking and have
produced an analysis of the gaps between average wages collected through
their audits and the AFW benchmarks.
AFW provides a good benchmark for a living wage, allowing greater
transparency. Surprised at how good the AFW concept -- “might have legs”....
2/3 of their customers would shop elsewhere if they connected to labour
rights abuses.
The topic of living wages should not be a campaigning issue against
companies but should rather be addressed through a strong CSR-program
and at the political level by the UN and ILO, G20, ASEAN and governments.”
Confident that in the majority of cases, the prices they pay to suppliers are
already adequate to cover a FLW – it’s just that factories are inefficient,
and/or owners are grabbing too much value.
What can Buyers do
Immediately?
• Publicly endorse AFW as a viable
benchmark for living wage
• Adopt living wage as an integral part of
sustainable production
• Develop a pricing mechanism for making
AFW deliverable
• Work with workers organisations to
implement AFW with their core suppliers