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Research Finds Direct Link Between Better Working Conditions and Higher Profit Firms

Sustainability is profitability, according to a study released Monday by Tufts University.

Researchers reviewed the Better Work program, a joint effort by the International Labor Organization (ILO) and the International Finance Corporation (IFC) established in 2007 to help address supply chain challenges, to see how it’s improving garment workers’ lives and boosting factory competitiveness.

Tufts analyzed nearly 15,000 survey responses from garment workers and 2,000 responses from factory managers in Haiti, Indonesia, Jordan, Nicaragua and Vietnam and discovered that as a result of their participation in Better Work, steadily improving working conditions boosted productivity and profitability.

The study found that the program moves factories away from practices leading to long hours, low pay, dismissal threats or abuse of probationary contracts. In turn, workers are seeing an increase in weekly take-home pay, while factories in Haiti, Nicaragua and Vietnam have shown marked movement in closing the gender pay gap. Coercive labor practices and abuse have also been reduced, particularly in Jordan, where sexual harassment reports have fallen by 18 percent.

In addition, researchers showed that production lines overseen by female line supervisors trained as part of Better Work’s Supervisory Skills Training (SST) increased factory productivity by 22 percent, when compared to lines supervised by workers who had not yet received such training.

Beyond that, the study found a direct link between better working conditions and higher profit firms. For instance, after four years in Better Work Vietnam, the average profitability of factories rose by 25 percent. Plus, firms that make progress on pay and working hours typically see an increase in order size from buyers, while the program has also helped to reduce duplicative audits (a big expense) in the industry. These results demonstrate that improving working conditions is not a financial burden, but a critical component for success.

“Evidence of a win-win outcome—improving working conditions while boosting profit margins—has to date largely been anecdotal. Tufts University’s impact assessment has made significant strides in establishing evidence of this relationship,” stated professor Drusilla Brown, lead author of the report.

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While much has been accomplished at factories participating in Better Work, a lot still remains to be done. The study found that sexual harassment is still a pressing problem in many factories, with several workers choosing not to answer questions relating to the issue. Tufts’ researchers suggested workers are reluctant to fully express their concerns and reports may underestimate the scale of the problem.

In addition, factories continue to force overtime hours. In Vietnam, for instance, half of the participating firms persist in their non-compliance with overtime limits through their fifth year in the program.

“Researchers conclude this could be caused by deceptive pay practices that prevent workers from fully understanding the calculations of their actual pay and hours, as well as by supply chain pressures driven by brand and retailer purchasing practices,” the report said.

To that end, Tufts determined that in order to establish a “business case” for high quality jobs, all stakeholders—brands, retailers, factories, policymakers, NGOs and workers and their representatives—need to develop a holistic approach to finding solutions across the global supply chain.