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Foxconn Raises Bar Again, Increasing Labor Pressure

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Foxconn, the international electronics manufacturing giant, has again changed the rules of the game in the Chinese labor market. Following a labor audit by the Fair Labor Association and a visit by Apple CEO Tim Cook, Foxconn revised what many regarded as unfair or exploitative labor practices. They raised their baseline wage, and reduced the total number of hours per week per worker to 49, from an average of 60, without lowering compensation. They also agreed to implement a number of health and safety related improvements.

[private]These changes come on the heels of a 25% wage hike in late February. Sourcing Journal covered that hike here. The reduction in work hours will likely exacerbate an already stinging labor shortage, as workers are unable to work overtime to compensate for the problem.

With a workforce estimated at 1.2 million, any changes Foxconn makes reverberate through the labor market, including within the garment sector. The company has major factories in Shenzhen, Chengdu, Zhengzhou, and Wuhan. They share industrial parks and special economic zones with numerous apparel and garment factories, and draw workers from the same pool of migrants.

Labor shortages at apparel and garment factories have amounted to up to 50% of capacity in recent months, as low-margin producers are forced to compete for workers with globally competitive firms such as Foxconn.

Wages in electronics average 50% higher or more than those in garment factories, and the jobs carry prestige and labor protections that workers covet. Garment factories will be forced to match improvements in wages and working conditions, if they are to continue filling vacancies.

Though garment and electronics workers are not interchangeable, there is a tendency for workers to drift up the value ladder as they gain skills and experience. As a result, garment factories often recruit the least skilled and most recent arrivals – those who cannot find work in other industries. These shifts are driving the movement of factories to China’s interior and to surrounding countries, a trend SJ (in partnership with Tradecard) discusses in more detail here.[/private]

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