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Alta Gracia’s Struggles Call ‘Living Wage’ Model Into Question

Alta Gracia, which makes socially conscious T-shirts and hoodies largely for college students, is hanging on by a thread after sales collapsed in the wake of the coronavirus pandemic, putting its “living wage” apparel manufacturing model to the test.

The company, which recently operated a 150-employee factory in the town of Villa Altagracia in the heart of the Dominican Republic, is now running a slimmer business (despite a brightening outlook for peers) with 40 to 50 workers, according to union officials who claim the firm is teetering on the brink of bankruptcy and won’t survive unless it can soon win new orders.

“They have gradually laid off 100 workers since early last year,” said Ygnacio Hernandez, who leads the Dominican Federation of Free Trade Zones (Fedotrazonas) union representing DR’s clothing industry, which ships $400 million to $500 million in garments annually. “Those workers were laid off with 50 percent pay and some benefits but now they are not receiving anything and have taken jobs with other sectors.”

Still, unlike other Caribbean or Central American sewers earning an average of $250 per month, Alta Gracia operators enjoyed a so-called “living wage” or salary exceeding the minimum wage. It was billed as the only such firm globally to pay workers a decent wage in the developing world, encouraging activists to monitor its business to see if fashion can profitably make clothes without exploiting workers.

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“They paid the highest salaries in Dominican Republic,” Hernandez continued. “When they opened 10 years ago, they offered $500 a month with a 4 percent annual increase and went up to $550. No one pays more than $300 a month in Central America or the Caribbean.”

Alta Gracia also offered social benefits and allowed workers to bargain collectively. This meant it had fewer resources to compensate staff when Covid-19 triggered a severe drop in orders from top customers such as Barnes & Noble and Follet Bookstores, which saw sales flounder as students began studying online.

Not that Alta Gracia’s fortunes were buoyant before the virus hit. In October 2019, the firm slashed 40 percent of its workforce including management in its Atlanta headquarters, to bolster operating efficiencies amid waning sales. The firm did not respond to calls and emails for comment.

While some said Alta Gracia’s troubles spotlight the pitfalls of the living wage model, Scott Nova, executive director of the Worker Rights Consortium (WRC), said firms with deep marketing budgets might have a better chance at success.

“Alta Gracia is small and never had much of a marketing budget to conduct a real test of whether there is enough consumer demand for living wage products,” said Nova. “We need a company to put millions into marketing, go to consumers and test if they will pay a buck or two more for a shirt made with a living wage. Until someone does this, we won’t know if the model works.”

Meanwhile, Central and Latin American workers’ plight continues to worsen amid the pandemic with brands and manufacturers firing workers without proper pay or engaging in rights abuses, according to Nova.

In its latest investigation, the WRC claimed Guatemala’s Elim ‘unlawfully’ dismissed 23 workers after they attempted to form a union. Elim, which makes university-licensed apparel for the likes of Outerstuff and College Vault, is not alone among the Guatemalan and Central American firms accused of similar behavior.

Nova said the WRC continues to work to convince brands to pay a percentage of their sales into a fund that will guarantee workers’ severance pay, a vehicle that could eventually surpass $1 billion annually, he claimed.

“Brands are getting tired of seeing factory-level fights over severance so they might start to see value in an organized system to address this crisis,” Nova said.

Back in the Dominican Republic, however, business is looking up.

“We are producing at a 100 percent rate and there are no problems in most companies,” Hernandez said, adding that Alta Gracia is an isolated case. “Our free zone exports are up 5 percent so far this year and many companies have continued to work despite the pandemic.”

Gildan has stepped up sportswear production, for instance, while Hanes’ factory was able to stay afloat by making personal protective equipment (PPE), according to Hernandez.

He noted that shipments from the country fell 20 percent last year, much less than the 40 percent to 60 percent reported in nearby countries such as Guatemala, Honduras and El Salvador.