How the Fair Labor Association promotes living wages for workers
In today’s globalized economy, large corporations are increasingly outsourcing production to factories they neither own nor operate. Outsourcing can significantly reduce production costs, while benefiting low-wage workers, many of whom migrate from farms to cities in search of predictable income and a better quality of life. Over the past 40 years, this model has helped lift billions of people out of extreme poverty, particularly in East and South Asia.
But too many workers who do outsourced manufacturing don’t earn a living wage and struggle to make ends meet. In his “What She Does Campaign“, Oxfam Canada has found that the minimum wage for garment workers in Bangladesh, Vietnam, China and Cambodia is between 46 and 74% of what workers need to achieve a decent standard of living for themselves and their families. families. In many developing countries, declining sales and outright cancellations of orders caused by the Covid-19 pandemic have driven wages down after years of steady progress. In Bangladesh, for example, where the average salary of garment workers increased significantly during the 2010s, the salary fell by 289 Bangladeshi taka (3.4 USD), or about 3% in 2020. In Vietnam , the situation is even worse, with an average wages down 388,896 Vietnamese dong (16.85 USD), about 7% in 2020.
Especially in the wake of the pandemic, all global brands and retailers must do more to address glaring deficiencies in wages and other forms of compensation for workers in their supply chains who are critical to their financial success. This forces large corporations to take a hard look at what factory workers earn and find ways to raise their wages. I chair the board Fair Labor Association, an organization that has brought together more than 50 athletic apparel and footwear companies like adidas, Patagonia, Hanes, Nike and Uniqlo with human rights groups and labor unions and universities, to promote the rights of workers and improve working conditions in factories. We’ve been promoting living wages for a decade and have learned that there are three important ways to get ahead:
The first step is to recognize the challenge and take responsibility for meeting it. In 2011, FLA participants recognized that every worker has the right to fair compensation. As a starting point, we turned to definition of living wage proposed by Richard and Martha Ankerco-founders of the Global Coalition for a Living Wage. This definition aims to ensure that workers can afford decent housing, meet their basic needs and those of their families, and accumulate savings, all without working overtime. The FLA 50 companies are committed to making this right a reality over the next decade in partnership with their suppliers around the world.
The next step is to understand how much compensation workers actually receive and develop a common system for determining, defining and measuring it. Compensation systems in outsourced factories are notoriously complex and vary from region to region. Some workers are paid by the piece, while others must meet various production targets; few are paid simply an hourly or daily wage. One thing we’ve learned is that workers constantly have to rely on overtime to help support their families and bridge the gap between their base pay and what they need. While overtime is often paid at a premium rate of 1.5 or 2 times the normal wage, workers shouldn’t have to work very long hours just to meet their basic needs.
Confusion over measurement and methodology has long caused companies, governments and civil society organizations to get bogged down in unproductive debates or give up altogether. To help companies manage this complexity, the FLA has developed an evolutionary methodology, aligned with Ankers’ definition, which measures what workers in a given factory earn throughout the year and takes into account the ups and downs of the production cycle. Then it took FLA companies to start collecting that data. By using a consistent methodology to measure workers’ compensation, we now have a baseline to understand how far we need to go to achieve a living wage.
Finally, the FLA has adopted innovative methods of collecting and applying data. According to Pearson’s Law, “What gets measured gets better. What gets measured and reported improves exponentially. Standardizing the collection of compensation data will push companies to find solutions. By using the FLA Fair Compensation Dashboard, companies can upload wage data and automatically compare it to region-specific living wage standards, including those of the Global Living Wage Coalition, as well as worker and union demands. Once companies have this data, they can use it to communicate with their suppliers, identify first steps, and dig deeper to find longer-term solutions.
Companies like Patagonia and adidas helped develop this tool and now use the FLA dashboard. Some, like New Era Cap Company, are already finding ways to improve worker compensation. The recent FLA case study documents three cases in which significant increases in take-home pay—ranging from 29% to 57% over a three-year period—allowed factory workers in China and Vietnam to earn a living wage without working overtime. For example, New Era and its supplier in Jiangsu, China, have begun talking more regularly about the factory’s production capacity and New Era’s upcoming order forecast. This type of communication, which often does not occur in a supplier-buyer relationship, meant both companies could plan better to avoid harmful and costly overtime. The factory also adopted a higher basic wage (replacing an hourly wage) and invested in new machinery to simplify production. In two years, workers’ net monthly wages have increased by 57%.
Going forward, much more needs to be done to engage with workers and ensure that global companies change the way they do business. Recently, the FLA Fair Compensation Program was recognized as a Winner of the 2021 Classy Award for Social Innovation. The award recognizes FLA Salary Data Collection Toolkit and Fair Compensation Dashboard as an innovative way to calculate the gap between real and living wages and measure progress over time.
Because these issues are complex, it is easy to give in to paralysis. Today, innovative approaches like the FLA program are pushing the debate forward. We all need to recognize the value of the people who make the products we use and wear every day. Like Nobel laureate Robert Solow once observed“The labor market is a social as well as an economic institution, and the interaction between human beings cannot be interpreted in the same way as the supply and demand of dead fish.”