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Fair Labor Association Weighs Factory Wages in 21 Countries

The Fair Labor Association (FLA), a Washington, D.C.-based labor rights group, this month released its first annual report listing worker compensation data collected last year from 124 factories in 21 countries.

The first-of-its-kind report is part of the association’s plan to help all FLA-affiliated companies achieve fair compensation throughout their supply chains.

In addition to charting how much workers in each factory’s four most common occupations earned last year, the report compared its findings with other relevant local compensation benchmarks, such as the legal minimum wage, World Bank poverty levels and cost-of-living figures developed by governments, unions, NGOs and others.

A key point that cropped up during the research was that pay violations occurred in one-third of the factories assessed by the FLA. Though the frequency of minimum wage violations has been falling over the past five years, 6 percent of factories evaluated in 2015 were still disregarding legal pay, while overtime pay violations were found in more than 20 percent of the facilities.

The FLA also found that for the four factories assessed in Bangladesh (totaling 4,791 workers), the purchasing power of average compensation was the lowest of any country studied and fell below the World Bank poverty line for a three-adult-equivalent household. By comparison, it was 2.5 times the poverty line in factories in China and Vietnam and found to be highest in Turkey, Taiwan and the United States.

Another discovery: In half of all factories assessed—and in two-thirds of countries covered—legal minimum wages appear to be the primary factor in figuring out factory compensation, with workers’ wages set at or 1.5 times above the minimum wage. The other 50 percent of factories fell between 1.5 and 3.75 times the legal minimum.

A further issue found during the factory assessments was non-payment of benefits. For instance, 69 percent of the 39 facilities evaluated in China (totaling more than 34,000 workers) discovered that employees were not being provided with one or more of the five types of social insurance—pension, unemployment, medical, work accident and maternity.

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“The first hurdle to fair compensation for workers is to prevent or remediate legal pay violations, a persistent problem found in approximately one-third of suppliers assessed by the FLA over the past five years,” the report said. “Beyond legal compliance, the next (and just as critical) step toward fair compensation is to ensure that the purchasing power of workers’ legal wages is more than sufficient to meet their basic needs.”

According to the FLA’s research, the purchasing power of compensation is weakest in Bangladesh, followed by Jordan (for migrant workers), Cambodia, Dominican Republic, India and Sri Lanka.

In order to make progress toward fair pay in global supply chains, the association suggested that workers, unions, brands and suppliers collaborate at the factory level to create systems that help ensure employees are paid what the law requires. At the brand level, the association recommended companies examine appropriate strategies for adjusting their sourcing model to account for the cost of fair compensation.

In countries where the purchasing power of the current legal minimum falls below or near the World Bank poverty line, the FLA proposed active engagement between national policy-makers, unions, brands and suppliers to develop fair and inclusive minimum-wage setting and to support the building of effective frameworks for industry bargaining.

“These adjustments may be related to improved productivity or efficiency, may be reflected in the prices paid by brands, or may derive from emerging research on new strategies for fair compensation,” the report said, adding that companies should consider incorporating locally negotiated wage increases in their FOB prices.

Looking ahead, the FLA and its affiliates will collect additional wage information to continue building its database, the results of which will be published next year.