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New Report Says Just 4% of a Garment’s Cost Goes to the Workers Who Make Them

The living wage conversation hasn’t let up as the apparel sector starts paying closer attention to the ills of the industry, but that conversation doesn’t yet seem to have translated to enough action.

A new report by Deloitte for Oxfam Australia, an organization dedicated to curbing global poverty, said big brands are to blame for keeping the people who work for them in poverty—meaning they’re not paying a living wage.

A living wage, according to Oxfam, should be enough money to provide a worker and their family with food, shelter, healthcare, clothing, transportation, electricity and water, childcare and education, plus a little leftover for emergencies or savings. And that wage should be earned in no more than 48 hours a week.

Most brands, however, aren’t meeting that standard at all.

On average, only 4 percent of the price of an article of clothing sold in Australia goes toward garment workers’ wages, the report found. That’s 40 cents on a $10 T-shirt. In Bangladesh, that percentage drops as low as 2 percent, where workers earn as little as 33 cents an hour. In Indonesia, workers are making 48 cents an hour. In Vietnam, they’re making 49 cents an hour.

“If brands absorbed the cost of paying living wages within their supply chains, it would cost them less than 1 percent of the price of a garment,” according to the report. “With profits being made at the factory, wholesale and retail levels in garment supply chains, there is room for big brands to absorb these costs without passing them on to the people who buy their clothes.”

[Read about what garment workers are getting paid around the world: Interactive Infographic: Where Wages Have Risen, Are Rising or Could Soon Rise]

As of January this year, just eight men around the world held the same amount of wealth as half of all humanity, according to the report. One of those eight men is Inditex founder Amancio Ortega.

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“There is perhaps no starker example of the growing global inequality crisis than the garment industry, where millions remain trapped in poverty on one hand, while a few amass great wealth on the other,” the report noted.

Though garment industries have improved economic positions in many of the low-cost sourcing countries, the benefits have not been shared at the bottom.

“Asia is home to most of the world’s garment production,” Oxfam said. “Although the region has experienced strong economic growth in recent decades, the poorest 70 percent of people in Asia have seen their income share fall. Meanwhile, the share held by the top 10 percent has increased rapidly.”

What can be done about living wages

In most countries, the difference between the minimum wage and what a living wage would be are stark: In Bangladesh, a living wage would be more than five times the current minimum wage. In India it’s three times more, and in Indonesia, Vietnam and in China, a living wage would be more than four times the minimum wage many workers are being paid.­

The apparel industry, Oxfam argues, can well afford to pay up to get garment workers to a decent wage.

On a $25 T-shirt, if a company opted to pay a living wage, factory labor costs would maybe jump from $1.00 to $1.15 and transport and tariff costs would go from 75 cents to 77 cents. That would mean the supply chain only needs to absorb 17 cents more.

New Report Says Just 4% of Garment’s Cost Goes the Workers Who Make Them
Credit: Oxfam Australia

“Profit margins vary from 3.4% to 8.4% based on the product and sourcing destination,” the report noted. “If manufacturers and brands absorb the costs rather than pushing them on to consumers, their margins will only drop a little to allow workers to earn a living wage. This is especially the case if wholesalers and retailers also work to reduce their overhead costs.”

The only way to make inroads on living wages will be government intervention—another notion that’s known but has not yet been acted on at scale.

“If a firm at the top end of the supply chain can control the size, design, quantity and quality of a product, and possess potential leverage to influence the working conditions of those producing the goods, it is then both fair and effective to align that power with legal accountability,” Justine Nolan, deputy director of the Australian Human Rights Centre said.

In the meantime, since moving governments is no quick task, brands will have to become more transparent, deal fairly with human rights abuses and make a public commitment to living wages and a plan for how to get there.

“Recognize that purchasing practices and pricing policies have an impact on wages (and working conditions) and commit time and resources to calculate the labor costs of merchandise to ensure that prices facilitate payment of a living wage at the very least,” according to the report. “This means that the freight on board (FOB) price should cover a living wage labor cost.”