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What to Know About Vietnam’s Living Wage Experiment

Among the morass of issues that plague the fashion industry, living wages have to be among the most contentious.

Garment workers, particularly those toiling in the global South, are chronically underpaid, which means they’re almost always struggling to pay for food, shelter, medicine and other necessities. When Covid-19 hit, hundreds of thousands who were laid off or had their hours truncated teetered on the brink of starvation and destitution. Economic precarity isn’t just a symptom of a broken system, but it’s the reason the system is able to function with alacrity in the first place.

On average, workers who stitch up clothing and cobble together shoes earn just over half of what they need to reach a decent standard of living—and that’s if they can rustle up their local minimum wage, according to The Industry We Want, a multistakeholder initiative that uses WageIndicator Foundation data to track progress—and its lack thereof. The disparity is worse in certain countries, such as Bangladesh, which grapples with a 66 percent gap between minimum and living wages, and China, which wrestles with a 67 percent one. In Vietnam, the third-largest garment exporter after Bangladesh and China, workers earn a monthly floor of between 3.25 million-4.68 million dong ($138.59-$199.57), or just 43 percent of what would constitute a living wage.

Tiffany Rogers, director of fair compensation and member engagement at the Fair Labor Association (FLA), which works with boldface names from Adidas, Hugo Boss and Lululemon to Nike, Patagonia and Under Armour, says she’s “passionate” about changing this narrative. A pilot program underway in Vietnam could be key to figuring out what’s stymying a meaningful breakthrough.

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But even getting to this point hasn’t been easy. Although the Washington D.C.-based nonprofit has been working on equitable pay since its inception two decades ago, it was really the fair compensation strategy it launched in 2020 that gave it the mandate to invest more heavily in solutions that can “shift the momentum,” Rogers said. From there emerged its wage data collection toolkit, an instrument that allows FLA affiliates to collect and benchmark wage data using uniform metrics from the Global Living Wage Coalition.

“And once we got that under our belt, [we could] really start to pursue what does success look like now that we understand the components to a living wage?” she said. “What are the estimates that we can use and [how can we] start to tackle these problems that are preventing progress from happening for workers?”

The organization made some headway in 2021 after a handful of its affiliates in China and Vietnam were able to increase their workers’ net salaries by between 29 to 57 percent over a three-year period. Workers at these factories, the case studies found, were able to achieve a living wage in a regular workweek without resorting to excessive overtime, an endemic problem that arises from a desperate desire to supplement poverty pay in order to make ends meet.

The solution, as it turned out, was honest collaboration between buyers, suppliers and workers, not just the superficial appearance of it.

In the Chinese province of Jiangsu, for instance, New Era and its contract factory entered into more frequent discussions about production capacity and upcoming orders. The factory adopted a higher base wage that replaced its hourly wage, committed to union and worker engagement, and invested in new machinery to simplify production and increase efficiency. Within two years, average workers’ wages increased by more than half.

The Maxport Limited production facility in Nam Dinh in Vietnam, to quote another example, rejiggered its production planning schedule so that it accommodated a shorter workweek, buffered in time in case of unanticipated delays, and created stricter purchasing guidelines for its customers. The factory also worked with trade union representatives to modify workers’ incentives and bonuses to boost take-home pay, which spiked by an average of 39 percent over five years.

These successes gave the FLA hope that living wages weren’t as out of reach as they appeared, Rogers said. And it led the group to revisit a pilot it had been planning before the pandemic derailed everything.

Testing living wages in Vietnam

Why Vietnam?

“We knew that in Vietnam there were some labor code revisions happening and they also had ratified the [International Labour Organization] conventions around collective bargaining,” Rogers said. “So we knew there was [an] opportunity there to potentially make progress just through the legislative changes that were happening within the country.”

The country also housed some 50 to 60 facilities shared by three or more FLA members. While the case studies involved factories with largely majority buyers, what really needed testing was a multi-buyer living wage solution that required changes from all stakeholders involved. Not to mention the fact that most brands don’t own their own factories, which means that they’re not directly responsible for paying workers their wages.

“When you have one or maybe just two buyers that you need to deal with, it’s a little easier for factories to tackle that issue, especially when you’re looking at planning and improving wages for workers through not relying on so much overtime,” she said.

The Fair Labor Association’s Tiffany Rogers, speaking during the Global Fashion Summit: Copenhagen Edition 2022 on June 6, 2022, in Copenhagen, Denmark. Lars Ronbog/Getty Images for Copenhagen Fashion Summit

Balancing the needs of multiple brands, on the hand, requires greater finesse.

“For this pilot, we’re really focused on selecting factories that have more than two or three FLA buyers, and then working with them to understand what their living wage gap is. How big is it? Where is it? Do they have it in specific occupations or is it across the board? Or is it maybe gender-specific?” Rogers said. “And then we will be working with our buyers to improve their purchasing practices to support those factories as we kind of do the diagnostic on the factories.”

FLA onboarded one factory in September. As of 2023, the scheme boasts three facilities, plus roughly a dozen brands, all of which remain unnamed for now. With funding from the Initiative for Global Solidarity, as implemented by the German developmental agency Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), plus on-the-ground support from the Research Center for Employee Relations (ERC), the pilot is poised to run through March 2024, though it could be extended if there’s “more to do.”

The project piqued the Initiative for Global Solidarity’s interest because wages can be an indicator of human rights and environmental risks that slice across the supply chain. They can also result in serious knock-on effects: If low wages incentivize overtime, then the mental and physical exhaustion that is a natural consequence could make workers more accident-prone, said Felicia Hoeer, technical advisor at GIZ.

“There would be a relation to occupational health and safety,” she said.

Hoeer sees responsible purchasing practices as an important lever in administering living wages. Even something as outwardly simple as better planning and forecasting can significantly improve conditions without a substantial increase in the price per product.

“If a producer knows how many orders and how many people he will have to have for these orders for the whole year, or even better for more time than a whole year, then he can plan ahead,” she said. “If, however, that changes and fluctuates a whole lot, that would mean that it’s difficult to know how many workers he needs and how he’s going to pay their wages.”

Taking an integrated approach

Do Quynh Chi, who until December was director of the ERC, said she viewed most living-wage strategies with skepticism until the FLA approached her. The way she saw it, one “extreme” is instituting a living wage at factories and then pressuring brands to pay it—a nearly impossible task. The other involves creating wage ladders, based on certain benchmarks, then allowing companies to take their pick of the available brackets. Nine times out of 10, they will choose the lowest option, Do said.

Direct supply chain intervention, however? Now that was something Do views with promise, particularly if suppliers, buyers and workers take a collective “integrated approach.”

“So it’s not just that either the buyers have to pay more so the factory gives the workers more, but we also help the factories identify the weaknesses in their systems,” she said. For the manufacturers, this could involve ineffective wage schemes or low worker satisfaction that casts a pall on productivity. For brands, irresponsible practices such as demands for ever-deepening discounts, multiple product changes, inflexibility on delivery times and extended payment terms can make it challenging for suppliers to provide fair compensation and decent working environments.

“If we try to look [at the problem] in a very comprehensive way from different angles, [we can find] a solution that is fair for all the stakeholders,” Do said.

One of the things she says should disappear is the piece or partial piece rate, where workers are paid according to every hem they sew or shirt collar they press. Half of the workers in Asia—who, in turn, make up more than two-thirds of garment workers worldwide—still wrestle with this, Do said, creating a boom-or-bust rollercoaster when it comes to how much they actually take home.

“When times are good and the factories have lots of orders, then workers’ wages can be pretty high; I’ve worked with companies that claim that they are able to pay slightly higher than living wage benchmarks,” Do said. “But the other side is, because they’re being paid piece-rate, whenever a crisis happens, runaway inflation in the U.S. or the EU causes orders to go down or during an off-season, wages are very, very low.”

With the cost-of-living crisis pummelling the West, orders in Vietnam have plummeted by 40 percent in recent months, according to the Vietnam Textile and Apparel Association, though exports for the past year are still expected to hit the $43 million target. Prices for existing orders, meanwhile, have dropped by 30 percent, Do said.

Another challenge is the asymmetric dynamics between buyers and suppliers. Brands, Do said, have “all the power” in the relationship, meaning they can dictate everything from product costs to lead-time requirements. Their remit, she added, is to keep prices stable or drive them down further.

“There have been some studies showing that purchasing prices have been the same over the past decade or even lowered by 5 percent every year,” Do said. “In order for the [suppiers] to maintain their profit margin, they will have to push productivity of workers to the maximum and increase their wages at the minimum.”

Do said she doesn’t want to “blame” anyone, but that is the reality of the fashion industry’s business model.

The ‘best possible outcome’

The pilot is currently in its information-gathering stage. Once that’s complete, the ERC will finish its analysis of the collected data, including wage figures, reviewed documents and interviews with factory managers and workers, to develop an action plan that lays out nodes of opportunity for sparking living wage progress.

Still, the FLA is already mulling possible recommendations such as ensuring that workers have access to grievance mechanisms to talk about their wages. The way pay incentives are structured might require tweaking so that excessive overtime doesn’t become a crutch for plumping up paychecks. Any path forward could also require a “gender perspective,” since women make up 80 percent of Vietnam’s garment workforce but earn 85 percent of their male counterpart’s wages, Rogers said.

“The kind of strategy of how we improve at the factory level will depend on the issues that we find,” she added.

Once all the stakeholders agree on the action plan, its execution can take place. What will follow is the monitoring and measurement of any progress.

“The best possible outcome is that we address the living wage gap in the factories, right?” Rogers said. “If that doesn’t happen, I think it’s still a really important pilot to pull out learnings from, especially on the worker engagement piece, and just even through the data-gathering phase that we’re in.”

Rogers said that there is a growing understanding by employers, not just in Vietnam but also worldwide, that living wages are critical if they want to obtain and attract the type of workforce they want. Due-diligence regulation in the European Union and potential wage legislation in the United States are also putting the topic under more scrutiny than before.

“We’re seeing a lot more open doors to start to talk about this more transparently and more comfortably,” she said. “And for me, that is a small piece of the success—that we have companies willing to take on this challenge and also have supply chain partners that are willing to support this. And we have to understand how best to talk to workers about it as well, so that they understand what it means for their wages, understand how to engage in the mechanisms available to them and take steps forward.”

And buyers and suppliers aren’t the only ones who ultimately have to pay into this, Rogers said. Retailers and consumers, too, have their roles to play.

“I would say that everyone had to pay a little bit more throughout the value chain,” she said.