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Global Sourcing Costs on the Rise: Wages That Went Up in 2014

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Global sourcing costs continue to increase, and rising labor costs are at the forefront of the uptick.

This year saw more wage strikes, resulting hikes and general unrest among workers when rates weren’t sufficiently raised. But despite discontent among the workforce, wages are up worldwide and labor will be more costly in 2015.

However, industry experts predict that lower costs of inputs, like cotton, which has hit five-year lows in pricing, could offset some of the increase in labor rates.

Speaking at the Sourcing Journal Summit in September, chief supply chain officer for PVH Bill McRaith, said with all things considered, including rising labor costs around the world, namely in China where labor costs have gone up between 10 and 15 percent per year, when you start to factor in companies working toward increasing efficiency and lean manufacturing, for example, people should start to see better prices.

Whether lower inputs will alleviate rising labor costs remains to be seen, but here’s a look at which countries saw wages go up in 2014.

 

Cambodia

After months of unrest and unsettled pay rates, Cambodia’s Labor Committee said in November it would increase the monthly minimum wage for garment workers by 28 percent to $128.

Strikes in the sector were rampant—and at times violent this year as at least three were killed when military police fired on protestors demanding higher wages in January. But the Cambodian government had been hesitant to raise the rate despite the ongoing unrest in fear that factory owners would be unable to pay and that factories might have been forced to relocate.

Unions were originally fighting to see the wages go from the previous $100 per month to $177, but settled on $140 as their lowest acceptable offer. The rate was below what the unions wanted and members from eight labor unions were reportedly planning to meet in November to discuss their next course of action.

The increased wage rate is expected to take effect from Jan. 1, 2015.

 

Los Angeles

On Sept. 1—Labor Day, for those seeking symbolism—Los Angeles Mayor Eric Garcetti announced a proposal to raise the minimum wage in Los Angeles from the current $9 per hour to $13.25 in 2017.

In its official statement on the proposal, the mayor’s office said the increase would come gradually over the course of three years, rising to $10.25 in 2015, $11.75 in 2016, and then $13.25 in 2017. After 2017, any increase would be tied to the Consumer Price Index.

A report by U.C. Berkeley economists on Mayor Garcetti’s proposal that states, in part, “The proposed policy would provide significant gains in income to Los Angeles’s low-wage workers and their families. Most businesses would be able to absorb the increased costs, and consumers would see a small one-time increase in restaurant prices. The policy’s impact on overall employment is not likely to be significant.”

 

Vietnam

Vietnam’s National Wage Council agreed on a proposal in August to raise the minimum wage by region by an average of 15.1%. The government approved the proposal, and increases will take effect from Jan. 1, 2015.

According to Thanh Nien News, the government will raise monthly wages by 250,000 to 400,000 Vietnamese dong ($12-$19), depending on the location. This year, the monthly minimum wage reached between 1.9 to 2.7 million dong ($90-$128), with higher rates in the urban areas.

Deputy Minister of Labor, War Invalids and Social Affairs Pham Minh Huan said the wage adjustments would be based on the country’s consumer price index (CPI), gross domestic product, overall wage increases and worker’s needs.

But despite the pending increase, Huan said the new wage levels will likely only meet 75 percent of the workers’ income needs, according to Vietnam Net. Living wages are still not being met and the increases still aren’t keeping up with the country’s high inflation—which is as much as four times higher than in neighboring countries.

 

China

Sixteen provinces and major cities in China have increased their minimum wage on average of 14.2% during the first half of this year–a rate that Xinhua News said exceeds economic growth as the Chinese government tries to support consumption.

Based on a report released by the Ministry of Human Resources and Social Security, Xinhua News said the wage hikes could affect China’s labor-intensive enterprises, especially small to mid-size companies that pay workers the minimum wage as their basic salaries.

Beijing, Chongqing, Shanghai, Tianjin, Shandong and Sichuan are among the regions the news agency reported to see wage increases. Shanghai now has the highest minimum wage, with monthly wages up 12.3% to $293, and hourly wages up 21.4% to $2.70.

 

Haiti

Haiti raised the daily minimum wage for its nearly 29,000 garment workers by 12.5% as of May 1, 2014.

According to the AP, Haitian President Michel Martelly along with the country’s prime minister and a labor conditions Cabinet member, agreed to increase wages to 225 Haitian gourdes ($5.12) per eight-hour workday. This falls short of the 500 gourdes ($11.38) workers had been seeking. The minimum wage was last increased in 2009 when the daily rate went from about $1.50 to around $4.50 over a span of three years.

Haiti’s government-convened Supreme Council on Wages had approved the wage hike recommendation last November, and workers who felt slighted by the insufficient increase took to the streets of Port-au-Prince in protest.

But despite protests, the Association of Industries of Haiti (ADIH) and apparel industry leaders dismissed the 500 gourdes raise request last year citing a need to monitor the wage rate to maintain the country’s competitiveness with low-cost nations like Bangladesh, Cambodia and Vietnam.

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