Wages in the Supply Chain: Clothing Industry Searching for Fair Solutions

Catastrophes like the devastating collapse of the Rana Plaza factory in Bangladesh, factory fires, workers’ uprisings, etc. – all of this news has since gotten through to the consumer. They’re putting the pressure on the textile industry to finally change these conditions. Only, why is it taking so long?

A few more cents – big effect

But it could actually be quite simple: You finally pay ancillary industries in the Far East a suitable wage for their work, and the factories could invest in better working conditions and pay their workers a fair, livelihood-securing wage. Just a few cents more per item would, in most cases, be enough to make a real difference. There have been calculations on the subject by now. And these few cents wouldn’t hurt the consumer, the retailer, or the manufacturer.

Nevertheless, very little is happening. A number on the subject from the food industry: Fair trade bananas reach a market share of ten percent in Germany. In second place is coffee with three percent. Fair trade in the food sector has already been active for 20 years now.

Germany’s fair trade textile standard, on the other hand, was only published in March 2016, and went into effect in June. It certifies the product from the fibers all the way up to the complete piece, and therefore is primarily useful for cotton products.

Patagonia was one of the very first brands to have produced a fair trade collection – in cooperation with Fair Trade USA, launched in fall 2014 and made up of ten items. That means that clothing is still more or less at the beginning of this process.

Outdoor industry has leader status

Of course, there are far more actors in the clothing industry that have been committed to better working conditions for years – leading the way are the NGO Fair Wear Foundation (FWF), located in Amsterdam, and its US counterpart the Fair Labor Association (FLA), headquartered in Washington. Businesses that get their certification have to be actively working on improving their working conditions. The outdoor industry is considered a pioneer in the field of social commitment. 

Some big brands like Jack Wolfskin, Mammut, Deuter, Schöffel, and Vaude have already reached a leader status within the FWF, which distinguished them for their exemplary work in the field of social standards in the global supply chain. Other brands like Maier Sports, Haglöfs, Mountain Sports, and Salewa are likewise members, and are committing themselves to the working conditions of their suppliers.

“The outdoor brands absolutely want to make it to our leader category,” lauds Lotte Schuurman of the FWF. The reason: “The outdoor brands need qualified producers, and therefore are investing in a long-term business relationship with their suppliers,” says Schuurman, “which doesn’t always apply to fashion as a whole.”

The latest price fight in the outdoor industry, however, is leaving its tracks behind here too: “On the customer side, unfortunately, interest in living wages in day-to-day business is usually limited to setting a code of conduct. Many brands have seen themselves facing difficult price situations in their sales markets in the recent past,” explains Karl-Martin Schmull, CSR specialist at the Chinese producer KTC, who has been committed to living wages for several years.

Price-sensitive consumers, sinking demand, and a lack of innovation have created an environment that’s leaving less and less room for living wages.

Living wages – a very complex subject

So, how far have we come in the subject of living wages? “I’m not aware of any brand that has actually pays living wages in their entire global supply chain,” says Dr. Mark Starmanns, who has been working on the topics of sustainability and fairness in the global clothing industry for several years. He advises companies in sustainability management, is a lecturer at the University of Zurich, and is among the initiators of ‘Get Changed! The Fair Fashion Network’. One of the reasons he names for this is the enormous complexity of the topic.

Many companies are interested, to be sure, but many underestimate the outlay that comes with that kind of implementation. The more confusing the supply chain, the more difficult the endeavor. That's because: only the supplier can really raise wages, only they pay their workers – not the brands that produce with them. It comes down to their willingness.

“The appreciation for this kind of matter is missing in many companies, though, since local minimum wages are determined by the government or the industry, in they’re even agreed upon in part between the government, industry, and works councils,” according to Starmanns.

Business abide by the standards on minimum wage, but are often far below what NGOs (for example) declare to be a fair, livable wage. Of course, the governments aren’t interested in raising the legal minimum wage very rapidly. Thus far, it’s been an important enticement to bring international investors into the country. In addition, higher wages – for example, in a country like Bangladesh, where textiles make up roughly 80 percent of exports – spur on inflation.

But factories don’t lack in understanding, but rather in confidence. In order to be able to assess how much more a living wage would cost the client, the factory would have to disclose it calculation. In the face of the price pressure of the last few years, that’s a demand that definitely would not wrongfully hit upon mistrust. It will only fare well in fertile soil where many years of trusting cooperation have already taken place.

What wage is livable?

It’s just as difficult to determine the amount of a livable wage. Governments, unions, scientists, and NGOs will come to very different conclusions in each region. One of the most highly renowned institutions in the sector is the Asia Floor Wage Campaign (AFW), in which roughly 70 Asian NGOs, unions, and scientists have teamed up to work on a joint computational model.

Nevertheless, even their values are contentious. For example, with the questions of how many people one salary has to support: one four-person family where only one adult works, or is it normal for both adults to work? Starmanns says it goes even further, “until finally we come to the question of how many calories a person needs per day, and whether a factory worker should be able to finance a university education for their children.”

The FWF therefore advises not to predetermine living wages from above, but rather to negotiate them individually to each factory with workers, unions, and the factory management. The FLA just published a study comparing wage data from 124 textile factories in 21 countries with wage standards. 

Industry calculation models thus far aren’t suitable

And there’s yet another hurdle: A calculation model has been established in the clothing industry that works with percentage markups. That means: if costs are changed at the beginning of the value chain by a certain percentage, then all following costs will change. That applies for both the retail margin and for the sales tax. A product can then become more expensive many times over very easily, even if in the beginning it was just about paying a few cents more.

But why should retail and the state join in when labor costs rise in India? The FWF has therefore developed a new computational model which can help prevent this multiple markup. Others, such as Patagonia, pay the increased amount into a separate wage fund which is then used to finance projects for workers. This, too, requires a lot of commitment.

What fundamentally applies: The search for cheaper and cheaper production sites goes on unabated. Myanmar and North Africa have since become the new hotspots for cheap producers.

At the same time, the more costly and innovative the production for a product, the more likely it is for fair conditions to arise. That’s because good, specialized workers aren’t that easy to find, even in the Far East, and they have their price, too. These days, according to Schmull from KTC, skilled personnel in China earn even more than those in and around Europe.