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Foxconn Raises Wages – Will Apparel Follow?

Major electronics supplier Foxconn yesterday gave a 25% raise to its estimated 1.2 million employees. They will now make an average of $400 USD per month, before overtime. Foxconn also expressed a commitment to improving working conditions, following a wave of scandals regarding forced overtime, repetitive stress injuries, and worker suicides. Foxconn manufacturers the iPad, iPod, and MacBook Pro, among other globally renowned products.

The rise in wages comes at a bad time for the Chinese textile and apparel industry. Labor shortages following the Chinese New Years holiday have been particularly acute this year, as more than 50% of workers have failed to return from their home provinces. Because both industries require large amounts of low-skilled low-cost labor, they often compete for workers. Unfortunately, the relatively high profitability of electronics and the prestige of working in the industry often gives garment makers the short end of the stick. The rise in wages at Foxconn puts pressure on garment and textile factories to raise wages by a similar amount, in order to continue attracting workers. Wages have risen steadily for the last decade, but have roughly tracked increases in productivity, so have not negatively impacted profitability. This latest rise comes with no consummate increase in productivity, and can be expected to squeeze producer’s already razor-thin margins.