4.1 How fair is BRIC pay in the Western European clothing supply chain?
Our analysis provides a robust basis for arguing that BRIC pay in the Western European clothing supply chain is unfair. We found a substantial difference between living labour compensation (i.e. a fair compensation level) and observed labour compensation in the Western European clothing supply chain. Our results suggest that it would cost an additional 10 billion USD MER to reach a ‘fair’ level of pay for BRIC workers in the Western European clothing supply chain. This figure is equal to almost doubling the cost of this labour in BRIC in 2005. This result supports the argument that substantial inequities persist in affluent country apparel supply chains (e.g. Pollin et al.
2004; Mair et al.
2016) and supports the more general argument that many developing country workers in global supply chains are treated unfairly (Simas et al.
2014; Alsamawi et al.
2014a).
Likewise, our results suggest that workers in the Agricultural sector have the most unfair levels of labour compensation: we found that the biggest difference between a fair level of labour compensation and actual labour compensation was in the Agricultural sector. This result shows the need for the full supply chain, and in particular, the agricultural sector, to be considered by Western European retailers and brands if they are genuinely committed to fair supply chains. However, despite commitments to full value chain assessment in some quarters (e.g. Scherman
2015; New Look
2011; ETI
2015), there remains a major focus on garment factory workers in most discussions of social sustainability in the textile and clothing sector (e.g. Miller and Williams
2009; Labour Behind the Label
2015). There may be legitimate reasons for Western European retailers to exclude agricultural workers from living wage commitments. For example, it may be infeasible for Western European brands to dictate labour costs in the agricultural stages. However, it is important that these reasons are made explicit. Moreover, there is a risk that increasing wages for garment factory workers could squeeze wages further down the value chain if garment manufacturers attempted to absorb the additional costs of fair pay by pressuring their suppliers to provide them with cheaper materials.
4.2 Implications for existing fair wage initiatives and research
Our results suggest that current research may underestimate the true cost of fair wages. We found that in BRIC, both living labour compensation and gross living wage estimates are substantially higher than net living wage estimates. This has two important implications for those working on issues of fair wages. First, our findings suggest that to an employer, social security contributions mean that the cost of paying a fair wage is substantially higher (in our case ~ 35%) than standard living wage estimates would suggest. This is a large additional increase for employers to pay, something that should be acknowledged in any recommendations to pay living wages. It is also likely to affect the ability of firms to pay fair wages, and this could be important in consequential SLCA. Secondly, when evaluating the fairness of compensation, SLCA practitioners should ensure that employee social security and income tax payments are accounted for in the living wage estimates they use. Otherwise, compensation that appears to allow workers to live a ‘decent life’ and therefore appears to be ‘fair’ may in fact be insufficient to allow access to a decent life and may be deeply unfair.
We also found considerable variation in living labour compensation across countries, despite fairly consistent tax and social security contribution rates. According to our estimates, employing a living wage worker in India costs around half as much as employing a living wage worker in Brazil. This is well established for net living wages in developing countries (Anker
2006a; Merk
2009), and we show that it persists once differing levels of taxes are accounted for. It is a reflection of the fact that living wages are inherently subjective and influenced by general living standards and levels of economic development. Consequently, those countries that are lower on the development ladder will have a lower living wage than countries more economically developed countries. This is why our estimate of a living wage for India is lower than our estimate of a living wage for China, for example.
This is important because variation in the cost of fair compensation between countries has been implicitly ignored in studies looking at the effects of paying fair wages in apparel supply chains. For example, Miller and Williams (
2009) estimate how doubling the wages of garment factory workers in the Philippines producing a men’s knit shirt would affect prices. Similarly, Pollin et al. (
2004) estimate how the price of a men’s shirt might be changed if Mexican garment factory workers were paid a living wage. Others make the same simplifying assumption of only examining workers in one country (Birnbaum
2000; WRC
2005). Given the fragmented nature of global value chains, the variation in both living wage rates and living labour compensation rates suggests that such studies may not be generalisable outside of their specific contexts.
Moreover, the cross-national variation in living labour compensation rates implies that brands and retailers in Western Europe could pay their employees fairly while continuing to chase the lowest global labour costs. The only difference from the current system would be that the lowest possible wage would be a fair wage. Therefore, if all retailers selling clothing goods in the Western Europe agreed to a living labour compensation floor, there is no reason to believe that capitalist competition based on wages would stop. Firms could still shift production from one country to another looking for the lowest possible fair wage. A positive take on this would be that globalisation in the textile and clothing industry supply chain could continue to function in the same development role as it has historically, providing employment to workers in the lowest income countries (e.g. Rivoli
2006; Tokatli et al.
2011).
However, there is also another perspective on this, namely that any ‘race to the bottom’ (even a bottom considered ‘fair’) is inherently undesirable. This is the position of campaigns like the Asia Floor Wage Alliance (Merk
2009), a group of unions and labour activists from across Asia whom advocate:
a regional collective bargaining strategy … [intended to]… to counter the threat of capital mobility …[and to]… prevent competition based on wage levels between Asian garment exporters and to make sure that gains are shared along the supply chain. (Merk
2009 P.39)
This regional collective bargaining strategy is based on a single net living wage estimate which is applied to Bangladesh, China, India, Indonesia, Sri Lanka, and Thailand. Although we have a slightly different geographical focus, our results do provide insights into the Asia Floor Wage Alliance approach.
As it stands, the Asia Floor Wage Alliance is likely to underestimate the true cost of fair compensation. The Asia Floor Wage Alliance fair pay estimate currently does not account for taxes in any form. Our results suggest that including personal income taxes in the Asia Floor Wage is probably unnecessary, as in most countries with progressive taxes living wages would fall within tax free allowances (though this is not certain and could change). However, we saw that employee and employer social security contributions can substantially increase the cost of fair labour. Consequently, the Asia Floor Wage may not currently be fair.
Moreover, the Asia Floor Wage may not stop competition based the cost of labour. This is because the Asia Floor Wage is a single figure applied to several countries but does not include social security contributions. This is an issue, because social security contribution rates vary between countries. When we move from a living wage to living labour compensation, the relative cost of a fair wage does not change between countries. But, this is because our living wage rate varies between the countries. If the same net living wage was adopted across several countries (as is the case with the Asia Floor Wage), the cost of labour could still change when employee and employer social security contributions were included. Put another way, the Asia Floor Wage does not fully account for the full costs of paying a living wage from an employers perspective. This is a problem, because it is the cost to employers that incentivises the shifting of capital between countries. If the single Asia Floor Wage were implemented across a range of countries, firms looking to minimise their labour bills might simply look to employ workers in countries with little or no social security provision. On this basis, our results lead us to believe that the Asia Floor Wage Alliance proposals would benefit from thorough investigation of these issues in their specific geographical context and incorporation of labour tax and social security estimates into their calculations.