Tearfund | Living Wage | Ethical Fashion Guide

The elephant in the room with most fashion companies is that while many claim eco-conscious collections, carbon neutrality, and an array of “give-back” initiatives, the workers in their supply chains can barely afford to put food on the table. Companies are caught between ethics and profit, with many overwlemed and stuck somewhere in the middle. The will to make improvements is there, but paying living wages is seen as an insurmountable task. And they’re right, it will be impossible unless they prioritise people over profit and work together.

Let’s clarify the difference between living wage and minimum wage

A living wage is the payment received for a normal workweek (48 hours) that provides a decent standard of living for the worker and their family. This includes payment for food, water, housing, education, health care, transportation, clothing, and other essential needs including a provision for unexpected events.

Unlike a living wage, in many low and middle-income countries, the legal minimum wage is far below what’s required for people to have a decent standard of living. It’s sometimes referred to as a "poverty-level wage”—an hourly wage that still leaves a full-time worker in chronic poverty. It’s estimated that wages in Bangladesh, Vietnam and Indonesia are typically 25% to 50% of what a worker needs for a decent living. For example, in Dhaka, Bangladesh, the minimum wage is NZ$131 per month while the living wage is NZ$370 per month.

The majority of brands only require suppliers to pay the legal minimum wage, and as a result, supply chain workers often work 10 to 16-hour days, six days a week, just to make ends meet. And the reality is, many workers get paid below the legal minimum wage. We recently interviewed a woman in Dhaka (the most expensive city to live in Bangladesh), who had previously worked in the garment industry. She worked 8am to 8pm, and sometimes to 10pm, and earned the equivalent of just NZ$20 per month. Take moment to let that sink in.

The garment industry’s chronically low wages mean workers and their families are trapped in a cycle of poverty. For many, the desperation this creates increases their vulnerability to exploitative conditions. The stats are startling—it’s estimated that 98% of garment workers don’t earn enough to meet their basic needs.

The truth is though, it’s not as simple as just asking companies to pay workers in their supply chain more.

The complexity

It might seem logical to demand that brands pay workers a living wage, and it is to an extent. But it quickly becomes complex because, while these workers are in a brand’s supply chain, they’re not technically employed by the brand—they're employed by the suppliers the brand uses. In most cases, these are entirely separate companies. So, what we need to question is how brands and suppliers work together and the ways this can help or harm workers.

One of the largest issues is brands are known to price-squeeze factories. It is common for brands to aggressively negotiate order prices down to a point where what they're paying the supplier does not adequately cover fabric, materials, and labour, or leave room for wage increases. Brands have the power to choose the cheapest manufacturer who can make clothes the quickest. The suppliers agree because they know that brands will go elsewhere if they do not meet the demands. This forces a race to the bottom among garment factories, and the people affected the most are workers.

Why do brands do this? To increase their profit.

It’s estimated that worker wages rarely exceed 3% of the price we pay for a piece of clothing. This percentage is considerably less for luxury items, as workers producing high-end clothing don’t usually earn more than workers producing for fast-fashion brands. Oxfam found that if brands were to add the price of a living wage onto a garment price, the final piece of clothing would only increase by 1%. That means a $20 t-shirt would now cost $20.20, and the worker who made it would earn a living wage. There is more than enough profit for brands to pay living wages without increasing the price for shoppers—it just comes down to priorities.

There are two common pushbacks brands have when asked about living wages

“We don’t own the factory, so we don’t have control over wages.”

If a brand increases the amount they pay to a supplier, there is no guarantee that the payment will move beyond the factory manager’s own pocket, as these managers are only legally required to pay their workers the minimum wage.

For brands just starting out, there is really no excuse. It is a brand’s responsibility to ensure workers earn a living wage before they start doing business with the factory. For brands who have pre-existing relationships with suppliers, it becomes a bit trickier. Dropping suppliers for not complying immediately isn’t the answer, because they’re probably unable to pay a living wage because of how the current business model is set up.

Our question for brands is if they can pressure factories to lower prices, why can’t they pressure them to increase wages by paying a higher price for orders and requiring transparency of all production costs? Brands already use audits to check that the legal minimum wage is paid—the process exists, it just needs to shift to checking a living wage.

“We only make up 1% of all the factory’s orders. We don’t have enough leverage.”

This is a valid challenge, but not for every brand! For new companies who have to option to negotiate wages before signing on with a supplier, and for massive global fashion brands who have huge leverage with suppliers, this rhetoric is simply an excuse.

For existing small and medium brands though, including many in the New Zealand market, this is a legitimate challenge. When brands make up an extremely small percentage of the overall orders that a factory is producing, it can be really difficult to have enough leverage to increase wages in the entire factory. In these situations, when it may feel like the odds are against them, there are still ways that brands can take action to address low wages. Firstly, a brand can implement other projects that indirectly improve wages. For example, Fairtrade USA seeks to improve worker incomes by paying a “fair trade premium” and a committee of workers votes to decide how to disperse it. The premium may be split among workers or contribute to community development initiatives to improve their wellbeing.

Secondly, to achieve leverage over wages in factories, companies can collaborate with multi-stakeholder initiatives and the other brands sourcing from their same factories. Two initiatives we credit in our research are Fair Labour Association’s (FLA) Fair Compensation Strategy and Action Collaboration Transformation (ACT). Both of these are multi-stakeholder initiatives that aim to help companies work towards ensuring a living wage in the supply chain. Unfortunately, of the 10 companies committed to ACT, none pay a living wage, and of the 11 companies committed to FLA, only two pay a living wage in at least one final stage facility.

The path forward

The road to living wages will be long, but it is possible.

Firstly, companies need to recognise the influence of their purchasing behaviour on working conditions and implement responsible purchasing practices. This means ensuring reasonable lead times so that workers aren’t pressured to work endless overtime. It also means accepting financial liability for last-minute order changes and cover the increasing costs of materials further down the supply chain. Most importantly, it means companies have fair pricing negotiations, where they adequately cover the costs of materials and payment of a living wage.

Secondly, companies can start down the road to living wages. We've said it's long, but there are many steps that a brand can complete now. Brands can make a public commitment to paying living wages and choose an accepted methodology to calculate the living wage. They can calculate the living wage for all the regions they have suppliers in and benchmark this with wages levels in audit reports. They can also choose which factories to start improving wages in—the list goes on.

We have many brands who use the pushbacks above as the reason for not paying a living wage, but many of them haven’t yet calculated a living wage for the areas they source from. This shows us that they have not even begun the journey and paying a living wage is clearly not a high priority. In fact, in the 2021 Ethical Fashion Report, only 9% of companies have calculated a living wage for all of their sourcing regions.

It’s not surprising that in our research, the only four companies who ensure a living wage in their final stage facilities all have explicitly people-focused business models. And this is only two more than in 2013. This stagnation shows that living wages are possibly the most difficult issue facing the fashion industry. More brands need to commit to paying a living wage, publish a roadmap to living wages that includes calculating the region for each area, and implement and monitor living wages throughout the supply chain.

Complexity isn't an excuse. Brands can change the way they do business to ensure garment workers earn a living wage.

Here’s some further information if you’re interested:

How are Living Wages calculated?

There are a two widely accepted methodologies for estimating a living wage:

The Anker Methodology: This calculation, used by the Global Living Wage Coalition, estimates a living wage based on the cost of living in a specific place (rural and urban). It provides a living wage calculation for 34 places and counting.

The Asia Flor Wage Alliance: A global alliance across garment producing countries in Asia that collaborates with networks in Europe and the USA, and has provided calculations for many Asian countries.

Do you want to see your favourite brand pay workers a living wage?

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