Will Consumers Pay the Price for Living-Wage Factories?

Source: http://www.flickr.com/photos/featheredtar/

Source: http://www.flickr.com/photos/featheredtar/

With the signing of President Barack Obama’s executive order to increase minimum wage for federal contract workers, the issue of minimum wage was put firmly on the table for discussion in 2014. The administration has also called for Congress to increase the federal minimum wage for all American workers, a move that would translate into a raise for 17 million people. Behind the president’s campaign to boost “opportunity for all” this year is the idea that minimum wage should be a living wage — pay that is high enough to maintain a normal standard of living.

“Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better. But average wages have barely budged,” Obama said in his January State of the Union address. “Inequality has deepened. Upward mobility has stalled. The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by — let alone get ahead.”

For lawmakers and economists, the question is whether an increase in the federal minimum wage will cause employers to slim their workforces, thereby eliminating jobs and increasing unemployment. According to the nonpartisan Congressional Budget Office, pushing the minimum wage to $10.10 per hour would eliminate jobs for 500,000, or approximately 0.3 percent of the nation’s total workforce, while overall real income would rise by $2 billion for all workers. That combination of positives and negatives has created the fodder for a national  debate — a debate centered around the intricate balance between labor costs, employment, prices for goods and services, and business performance. Living wage is by no means a debate unique to the U.S. But abroad, the questions plaguing leaders and economists are far more complex; for example, the garment industry of southeast Asia and the Caribbean must consider whether implementing a living wage would dampen demand of U.S. retailers for their products.

The horrendous conditions were many of the garments sold in the United States were thrown into the spotlight by several high-profile disasters in Bangladesh — a south Asian country that ranks as the world’s second largest garment exporter. In recent years, several deadly industrial accidents have occurred in and in the area surrounding Dhaka, the capital and largest city of Bangladesh; since 2005, factories that produce clothing for brands like Wal-Mart (NYSE:WMT), Abercrombie & Fitch (NYSE:ANF), Target (NYSE:TGT), Gap (NYSE:GPS), and J.C. Penney (NYSE:JCP) have suffered building collapses, fires, and a boiler explosion that have together killed more than 200 people and injured hundreds more. While unsafe working conditions have eclipsed the other aspects of the poor labor conditions in the garment industry, the added spotlight on these factories has also drawn attention to the low wages paid to those workers.

In other garment-exporting countries, low wages have become much bigger issues. In Cambodia, for example, labor unrest spread across the country in 2012. The 400,000 workers spread across approximately 300 factories in and near the capital of Phnom Penh called for fewer hours, better conditions and higher wages. As trade union leader Chey Mony told PBS Newshour through a translator, workers are paid a low wage, equivalent to 61 U.S. dollars per month, which is far too little on which to live.

Plus, there is no health insurance or retirement benefits. Even though a system of labor standards — complete with minimum wages, a limit on working hours, union representation, and freedom of expression — was implemented in the years following the fall of the brutal Khmer Rouge regime, one garment worker interviewed by PBS likened his job as the equivalent of a legal slave. Naturally, the industry holds a different opinion; Cambodia Garment Manufacturing Association’s Ken Loo argued that while wages may seem low, garment workers who accrue overtime not only earn more than policemen, teachers or most civil servants but also earn 40 percent more than national per capita gross domestic product.

The debate between garment workers who feel they do not make a living wage, the powers that be in the garment industry, which see wages as comparatively high, manufactures that want to keep profits strong, and U.S. retailers that are under increasing pressure to source products ethically reveals further intricacies of the labor debate. But the big question that emerged from this discussion, and others like it, is whether American consumers will pay higher retail prices.

At first glance, it may seem unlikely that consumers would want to spend more on clothing; already retail sales data shows that Americans have generally been spending less on discretionary purchases, especially on apparel. While there is a growing concern among consumers about the conditions in garment factories, the average shopper when presented with two identical T-shirts — the one produced in a living-wage factor priced significantly higher than the other — would likely purchase the cheaper option. As special correspondent Fred de Sam Lazaro explained on a Wednesday segment for Newshour, “Experts say much will depend on consumers, whose behavior can be influenced by factors as varied as a team’s performance or even a news headline from Bangladesh.”

What has been proven is that certain businesses in niche markets can be moderately successful while paying a living wage. Joe Bozich’s Knights Apparel is the largest maker of licensed college sportswear. The firm’s Alta Garcia factory — located in the Dominican Republic, a Caribbean nation of 10 million where unemployment totals nearly 15 percent — has a union to represent workers and pays wages based on the cost of living for a family of five. That living wage totals $3 hour, or three times the legal minimum wage, and significantly higher than the minimum wage of between 19 cents per hour and 34 cents per hour paid garment workers in Bangladesh.

“There is no pressure here to produce all the time,” explained factory worker Manuel Guzman to Newshour through an interpreter. “People come here to train us. Lawyers have taught us our rights.” The finished product comes with a hangtag that includes a picture of a company employee and a line of text detailing how higher wages improve standards of living, explained Bozich on the program. “One of the hangtags says, ‘My son goes to school because of these clothes.’ Another one might say, ‘I can afford food, clean water, and medicine for my children when they’re sick because of your purchase of these clothes,’” he added.

Still, the Alta Gracia factory runs at just 60 percent capacity, and in its three years of operation, has yet to turn a profit. Knights Apparel is facing brutal competition from garment manufacturers across the globe; as Lazaro describes, surrounding the Alta Gracia factory are empty buildings, or “reminders of the daunting global competition” that has forced thousands of jobs to move to lower-cost countries. But even with the company facing that stark reality, Georgetown University’s John Kline believes that, “Joe [Bozich] is big enough with Knights Apparel” to give the living-wage factory model a “real test.”

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