EPISODE 35: How businesses are benefitting from increasing costs to pay living wages

Minimum wage, living wage, sustainable sourcing, ethical sourcing, supply chain.

EPISODE TRANSCRIPT:

Welcome to the Fashion Unearthed podcast. If you need help navigating the fashion industry sustainably, you have come to the right place. I'm your host Belinda Humphrey and my hope is to simplify the fashion industry so that businesses can make the best decisions for people, planet and product.

Hello, and welcome to episode 35 of the Fashion Unearthed podcast. I hope everyone's okay out there, wherever you're listening in. In Melbourne, Australia, where I'm recording this, the weather is starting to cool off in the mornings, and the days are getting a little bit shorter.

Before I get into today's episode, I realised the other day that it'd been a year since I launched my new website to formalise me going out on my own and carving out a new way to work within fashion that was more aligned with my values. Which doesn't seem that long, but a lot can happen in the year.

I've been consistent with my monthly emails, which you can sign up for on the website, as well as launching this podcast and along the way, I've met so many like minded people who share my passion for change within the industry. So thank you to everyone who's reached out, listened to an episode or signed up for my newsletter. It's reinforced, I'm on the right track and other people are on the same path.

What I want to talk about today is something I cover in my Ethical and Sustainable Sourcing Guide, which you can find on the website in the shop as it's really important to know what the people in your supply chain are being paid. Being ethical depends on it and goes hand in hand with being sustainable. I probably don't have to tell you if you're listening to this podcast that an industry running off cheap labour is not sustainable.

Just briefly, I want to mention wages are not the only thing to consider when talking about being ethical, things like no forced or child labour and safe working conditions are some of the other things to consider as well.

Throughout my years working in businesses and being a part of the product development process, a focus of many companies was always on fabric, asking what's the fabric price or giving targets and asking Mills always admit fabrics that fit into this bracket. Or if something was too expensive, the fabric was one of the first things to be scrutinised.

Rightly so the labour cost wasn't scrutinised as much or used as an area to reduce price. The main thing that happened was pockets are removed, particularly in women's wear. When a cost breakdown or open costing came in, it just had a section for labour. It often didn't go into the hours needed to manufacture, if some steps were outsourced, or how many people were involved in creating that garment. From a business point of view, knowing what people were paid was often left to another department or the actual factory owner and assumptions were sometimes made that it was "fair" in inverted commas and had been addressed. I think you would agree that a fair wage is pretty subjective depending on who's deciding.

Which brings us to the definitions of minimum wage and living wages. Minimum wage and living wages are more universal and have set calculation criterias. Minimum wage is often something that is set and determined by local and federal governments and is the minimum that an employer is legally required to pay its employees. One article I read said that the minimum wage in America was set at $7.25 an hour in 2009 and hasn't changed since.

The criteria used to calculate a living wage includes things such as the cost of nutritious diet, housing, clothing, healthcare, maternity care, childcare, education, fuel, transportation, and savings. Five to 10% of discretionary income is also included to account for emergencies or savings. This amount needs to be earned in no more than 48 hours per week. A living wage considers cost of living and adjust for inflation, whereas a minimum wage is not adjusted for rising inflation.

So I know within Australia at the moment with an upcoming election, there is a huge debate about the cost of living and inflation, but particularly after pandemic, and now with the conflict in Ukraine and Russia, the cost of living is an issue that's being discussed worldwide. In a way I think it's making everyone more aware that minimum wage isn't just something that you need to address at a factory with someone on the machine. It's something you should be interested in right through your supply chain from farmer to shop floor, and for many supply chains over multiple continents.

A report released in February this year from The Industry We Want match the percentage difference between minimum wage and living wage in multiple countries. They found that the average percentage gap between minimum and living wages in key garment producing countries is 45%. Real workers are receiving just over half of the money they need to reach a decent standard of living. The lowest gaps were Honduras at 3%, and Turkey at 5% and the highest was Indonesia at 71%. Bangladesh at 66%. And China as 63%. Over half of the countries including India, Vietnam, Cambodia, and China had a gap of over 50%. And if you want to go into that report in more detail, I'll put the link in the show notes on my website, but they used benchmarks such as Wage Indicator Foundation, Global Living Wage Coalition, Asia floor wage and Europe Floor wage to set the living wages.

For many businesses where to start can be overwhelming, particularly when business models have to change. However, an article from Sustainable Brands proposes that the potential benefits from working towards a living wage are great. Things such as more productivity, less staff turnover, greater working commitment, and motivation as well as a better quality of life for the workers. They identified five key insights to help businesses on their living wage journey and today, I want to talk about three of them. But of course, you need a firm understanding of your supply chain, and also the gap between a living wage and what the workers earning now before you begin.

The first is cost. It's often assumed that to close the gap to a living wage will incur too greater cost onto the final goods. However, a phone company that sustainable brands researched would only incur an extra one euro and 65 cents per unit and a mango supplier would only need to add 10 cents onto their final cost price. They also gave an apparel example which was a Dutch workwear company that only needed to increase their polo shirt cost by 25 cents to close the wage gap in their Turkey factory and shared openly their cost structure to educate their customers and explain their reasoning.

The second key insight was around showing that price escalation is avoidable. Price escalation is when each business in the supply chain adjusts their price in reason to increased costs in another part of the supply chain, resulting in a higher price for consumers than simply paying a living wage. Some of the solutions they suggest include separating the living wage cost from the price paid and working with suppliers to pay this directly to the workers. In the example of the phone company, they pay a monthly living wage bonus on top of the regular salary. Another way was maintaining direct and transparent supply chain relationships and sharing responsibility with all supply chain partners and inviting them to participate.

The third key insight from that article I wanted to talk about is the challenge on how to distribute funds earmarked for living wages. How do you know they're being paid in the best way? Again, it's important to have a trusting relationship with suppliers to make sure that payments can be verified and confirmed. But they say that ultimately, your suppliers and workers know how to best manage the distribution of the funds. They gave an example of Nudie Jeans management working with the factory workers to decide how to manage the payments, and the workers preferred a living wage bonus with those being employed for more than three months receiving a higher amount. The Living Wage bonus is one way they found businesses allocating the money. Another way within vertically integrated supply chains was to directly increase the workers pay to a living wage. And the third way in the case of seasonal work where workers might average three months of work a year, a Mango supplier created a micro finance fund to provide workers with access to rotating credit to invest in their own businesses.

The article concludes there are benefits for both suppliers and buying companies to start their journey to a living wage. For suppliers, the result is a more committed effective workforce and for buying companies it builds trust with suppliers and helps them build more accurate business decisions. It's another way to build a true partnership with your suppliers.

So as a recap, we talked about the differences between a minimum wage and a living wage, as well as evidence of large gaps between wages globally within the garment sector and finally, some examples of how businesses are making change and actually benefiting from it. I hope that you feel confident to look at your own supply chain now and get a greater understanding on what wages being paid and how close they are to a living wage. Wherever you're at, the main thing is to know what your workers are earning now to understand where that sits in relation to a living wage.

That's it for today's episode. If you wanted to get in touch with me, you can email me at info@belindahumphrey.com or DM me on Instagram @belindahumphrey_ and like I mentioned earlier you'll find the links for anything mentioned in today's episode in the podcast section, as well as the show notes, just go to the website belindahumphrey.com and head to Episode 35 in the podcast section. Thanks so much for listening. See you next time.

Thanks for listening to the Fashion Unearthed podcast. If you want to get in touch head over to belindahumphrey.com or you can find me on Instagram @belindahumphrey_

Disclaimer: Whilst every effort is made to ensure that information is accurate at the time of recording, much like the fashion industry itself, this information may change.