REPORT ON

THE LIVING WAGE SYMPOSIUM

 

November 19-21, 1999

 

Robert M. La Follette Institute of Public Affairs

University of Wisconsin-Madison

 

John F. Witte, Director

 

February 8, 2000

 

Table of Contents

Acknowledgments

Executive Summary

Plenary Sessions

The Workshops

Possible Future Action and Research

Background

The Plenary Sessions

Perspectives on a Living Wage

Defining and Measuring a Living Wage

Economic Effects of a Living Wage

Monitoring a Living Wage

Summary

Defining and Measuring a Living Wage

Conceptual Issues

Basic Approaches to Computing Wage and Income Standards

Practical Measurement Issues

Setting Wage Standards

Research Sites, Targeting, and Geographical Considerations

Future Actions, Organization, and Time Lines

Economic Effects of Setting Living Wage Standards

What are the Basic Questions?

Broader Effects of Setting Living Wage Standards

Economic Research Approaches

Monitoring a Living Wage

Monitoring Organizations

Existing Monitoring Efforts and Costs

Pilot Project

Possible Future Action and Research

Multi-university Consortium

Pilot Projects

Future Research on Economic Effects

Possible Timelines

Appendixes

A. Agreement Between Students and Chancellor

B. Program and List of Presenters

C. Symposium Attendees

D. Wages and the Purchasing Power Index (CREA)

E. Purchasing Power Index in Haiti (CREA)

F. Appelbaum/California Memo


Acknowledgments

Comments were received on earlier drafts of this report from the following people: Richard Appelbaum, Jill Esbenshade, Stephen Golub, Robert Pollin, Nicholas Reville, Richard Rothstein, and Todd Whitmore.

Chancellor David Ward encouraged this symposium and supported it with university resources.


Executive Summary

A February 1999 agreement between Chancellor David Ward and University of Wisconsin–Madison students concerned about sweatshops called for a symposium to be held. Planned for November 19-21, the symposium was to cover a number of topics related to establishing a living wage for workers in the international apparel industry:

  • How can a living wage be determined?
  • What are the implications of determining (and/or setting) a living wage?
  • If set, how could a living wage be monitored?
  • What are other methods, if any, for ending exploitation of workers who construct college logo apparel?

The symposium was funded by the University of Wisconsin-Madison and hosted by the La Follette Institute of Public Affairs on the Madison campus. Attendees included both students and faculty members from a number of disciplines and universities as well as labor and religious leaders involved with the living wage issue and the sweatshop movement.

Chancellor Ward opened the symposium by stressing the importance of the issues and the university’s commitment to ensuring that UW-Madison’s logo apparel not be made under sweatshop conditions. The plenary sessions that followed provided background and perspectives on the concept of a living wage, issues pertaining to defining a living wage, the economic effects of establishing a living wage and factors related to monitoring a living wage. On the second and third days, workshops were held on each of these issues, with discussions specifically focused on the logo apparel industries.

Plenary Sessions

The plenary sessions highlighted the severity of the sweatshop problem with dramatic examples of problems offered by a number of speakers. In general speakers were uniform in their feelings that serious efforts are needed to address what are truly deplorable conditions.

The structure of the apparel industry was described in detail. Among other things the industry is highly decentralized, with retailers removed from suppliers by several levels. Middlemen are used extensively, and factories usually make apparel for dozens of companies at a time. Because of this there is a weak legal link between very large retailers and the factories where the goods are ultimately made.

Several speakers explained the importance of the living wage movement from a religious and social justice perspective, while others described various economic and historical approaches, placing the movement in the historical context of minimum wage issues and demonstrating the falling wage rates of U.S. apparel industry workers.

The plenary session on defining and measuring a living wage provided technical discussions of the two major approaches to measuring consumption and wages. The first is with national-level surveys carried out by such organizations as the World Bank or by government agencies in the countries. The second is through local, targeted studies of actual prices and wages in the region of the factory. These studies are often carried out by nongovernmental organizations (NGOs) in conjunction with local people.

The session on economic effects of a living wage included a degree of disageement among participants. One speaker felt that intervention should be restricted to labor rights issues, that no effort should be made to intervene in wages, largely because jobs may be lost. Wages would rise naturally, he argued. Another speaker felt the best approach was to follow a minimum wage strategy set somewhat higher but in relation to national and industry averages. He believed that this would be easy to implement and adjust over time. A final speaker advocated a living wage and strong labor rights efforts in sweatshop countries. These efforts should involve U.S.-based unions, unions in the relevant countries, and the International Labor Organization (ILO).

Finally, in the session on monitoring, speakers discussed different approaches to monitoring and enforcing agreements on wage and labor standards. Again divergent views were expressed. One speaker advocated an approach using the ILO standards in tandem with private codes of conduct and working with grass-roots monitoring in countries. Another speaker adamantly opposed private monitoring by the companies themselves or by consulting firms employed by the companies. She advocated the direct involvement of workers in the plants and NGOs in the region. All the speakers agreed that there is a serious problem with obtaining accurate wage data and records from businesses.

The Workshops

The defining and measuring workshop first discussed whether wage standards should be set following a minimum wage or poverty line approach or a living wage approach directly related to a full range of consumption. The majority of workshop participants favored the latter.

Participants then discussed the advantages and disadvantages of the various approaches to measuring consumption. National surveys have greater reliability on a national level because they are based on probability sampling, but they do not provide the targeted data or the refinements of on-site, grass roots price studies. There was general agreement that a combination of these approaches would produce the best results and allow fairly accurate measurement of a wide range of living costs that could then be compared to and used to establish wage standards.

There was less agreement on where and how exact wage standards should be set. Some expressed concern that if set too high, industries would move to lower-wage countries. Others argued that it isn’t possible to set uniform wage standards and monitor them effectively. The workshop ended with agreement that a pilot project should be created to begin in the spring of 2001.

The economic effects workshop considered two basic issues: (1) raising wages and improving working conditions; and (2) transparency, disclosure, and proper monitoring of company wages and practices. Participants agreed that the latter was more important for sustaining wages and standards over time.

The discussion covered several specific topics affecting these general issues. The first was demand elasticity or how much demand would drop with increases in prices in the logo apparel industry. The consensus was probably not much, in the 5-10 percent range. There was less consensus on whether wage standards should be set based on consumption or relative to local wage rates. Given that the former can have negative feedback effects either through industry movement and higher unemployment or in terms of high wage "enclaves" making logo apparel within a country, the local wage conditions had to be taken into account. Specifically, participants recommended starting with the question, "What would be the wage bargained for by workers if they were allowed to organize and bargain collectively in a free, democratic environment?" Productivity gains and losses and their impact on unemployment were also discussed. Finally, two forms of possible redistributive effects were noted: (1) redistribution from consumers of apparel to workers who make it; and (2) redistribution from higher-paid workers in the logo apparel industry to lower-paid workers elsewhere. Given the assumed low elasticity of demand, the first effect was assumed to be more likely and important.

In the monitoring workshop, participants first discussed the history of codes of conduct, the creation of the Fair Labor Association (FLA), and the emergence of the Workers Rights Consortium (WRC). There was considerable criticism of the FLA. Those criticisms included corporate dominance of the FLA, limited local NGO participation, use of minimum wage rather than living wage standards, the method of selecting sites, and the failure of full commercial transparency. There was disagreement regarding the usefulness of consulting firms as monitoring agents because these companies may have ties to the companies they monitor.

There was also an extended discussion of the emerging WRC, which relies on worker complaints from within the factories as a way to trigger monitoring of a factory. The WRC would rely on local NGOs to monitor the factories, and companies would be required to provide full disclosure–the identities of their contractors, location of sites, nature of their production processes, and more. Funding could come, as it does for the FLA, from a percentage of royalties, paid by the companies. There was not a consensus on whether this group should endorse the WRC.

Several other approaches to monitoring were also discussed, including using accounting firms and international standards. The workshop ended with a recommendation for a pilot project based on a specific set of principles.

Possible Future Action and Research

The final session of the symposium was devoted to reviewing the results and recommendations for future actions of participants in the workshops. Three general conclusions emerged. First, a consortium of universities should be formed to address living wage and sweatshop issues. Second, the consortium should plan and sponsor on-site, targeted pilot projects in several countries. Such pilots would need to include measuring consumption and wages in one or more regions as well as assessing and testing various approaches to monitoring. Third, further research on the economic effects of a living wage needs to be conducted. Three types of issues and studies were envisioned: (1) a study of the demand elasticity in the logo apparel industry; (2) a study of the cost structure of the industry, especially the labor costs that go into the products; and (3) research on the "ripple effects" of higher wage standards—both positive and negative ripple effects. Further research is clearly needed on industry relocation effects.

 


 

Background

In February 1999, University of Wisconsin-Madison Chancellor David Ward met with students at UW-Madison who were concerned about licensed collegiate apparel being produced under sweatshop conditions. As a result of that meeting, an agreement was reached between Chancellor Ward and the students (Appendix A) outlining four items to be included in a code of conduct being developed for manufacturers of university apparel. One of these items is "Wages and Basic Human Needs."

Under Wages and Basic Human Needs, the agreement stated that "UW-Madison shall convene a symposium and sponsor institutionally funded research to determine living wage requirements." The Living Wage Symposium was convened by the
Robert M. La Follette Institute of Public Affairs to carry out the first part of this directive.

The chancellor also appointed the Living Wage Steering Committee to study the living wage and international labor standards issues, but particularly the living wage issue. At a meeting on April 28, 1999, the committee agreed that the living wage issue should focus on trying to define and measure a "monitorable living wage" in the logo-apparel industry. The group decided it would not deal with larger labor issues or directly with how monitoring would take place.

The steering committee decided to hold a planning roundtable on June 25 in Madison. This would be a public, day-long opportunity to get input on the issues surrounding the living wage issue, possible speakers and experts to consult, and a suitable format for a fall symposium. Students, especially, would invite comment from their colleagues from around the country who were involved with this issue. It was publicized through an e-mail distribution list consisting of names from the Collegiate Licensing Company (CLC) Task Force Advisory Committee, the steering committee, and many others requesting information on the fall symposium.

The fall symposium would be a sharply focused educational event to help establish a shared understanding of the complexity of the issues of living wages. Discussion at the steering committee meeting of June 10, 1999, dealt primarily with the upcoming roundtable and the agenda for the symposium. A two-part symposium format with a plenary session to be followed by two days of workshops was suggested and agreed upon. It was also agreed that a living wage workshop had to be held, but that other workshops and networks on these other issues should be created. It was suggested that the first-day presentations be linked to other workshop issues (enforcement, economic effects, etc.), but that was left for discussion at the roundtable.

On June 25, twenty-four people, including students, faculty, and staff from eight universities, attended the roundtable discussion. The proposed format and date of the fall symposium were adopted, and initial suggestions of speakers, workshops and leaders were made. It was also decided that a discussion of monitoring issues had to be included. Further suggestions were to be directed to the La Follette Institute for incorporation into the final stages of planning the fall symposium.

The final symposium program and list of presenters is included in Appendix B. More than 110 people attended the three-day symposium held in Madison on November 19-21, 1999 (Appendix C).

 


The Plenary Sessions

Even before a living wage for workers in the United States or abroad could be discussed—or defined, measured, set, or monitored—participants and speakers at the Living Wage Symposium held at the University of Wisconsin-Madison in November 1999 shared their perspectives on the issue, providing necessary description and background of the industry and the issue.

Perspectives on a Living Wage

Robert Pollin, professor of economics at the University of Massachusetts-Amherst, explained that the living wage movement is really part of the earlier minimum wage movement in this country, wherein supporters of that idea argued that workers are entitled to earn enough to support their families, to maintain self-respect, and to have both the means and the leisure to participate in civic life. Medea Benjamin, of the human rights organization Global Exchange, compared the living wage to pornography when she said, "It’s hard to define, but you know it when you see it."

A scene described by Benjamin contrasted the U.S. multinational corporation that owns its own factories with apparel industries that don’t. The employee in Djakarta she visited who worked for Goodyear felt lucky to work for a U.S. company, she said, because it paid three times the minimum wage and allowed him to live a middle-class life (by Indonesian standards)—to drive a motor scooter, send his children to school, own a home, and ply his visitors with pastries and beverages. An employee in the Nike plant, on the other hand, rented one room along with three other workers. They slept on a mats on the floor, jammed closely together. They had no electricity, no running water, and no food to serve their guests. They worked hard and scrounged to send money back to their families, but they were not earning even the minimum wage (which in Indonesia is set at 80% of subsistence for one person). The government of Indonesia competed with other countries to get Nike to come there, granting them exemptions from the minimum wage so that they could pay less than in Malaysia or Thailand. Nike’s argument for paying only 30 or 40 cents an hour, according to Benjamin, is that such wages are not meant to support a family—they’re "McDonald’s wages," she was told. They were meant for entry-level workers who would work there a short time and move on to something better. Benjamin pointed out that the people in the jobs, however, were often young women who did have family obligations—parents to take care of, sisters and brothers, sometimes children. After describing the differences between working in a developing country for a multinational company with its own factories and working for an apparel manufacturer that subcontracts, she explained that setting the wage has to be done by the workers themselves, not northern consumers, and that it has to be done through organizing—a daunting challenge. Only 3 percent of workers in the apparel industry are unionized, she said, and if workers in China are counted, that figure is probably exaggerated. She argued that meeting some kind of minimum wage is not sufficient, that "every wage has to contribute to the wage of a family," and that it’s companies that have to pay.

Benjamin reported a conversation with a Reebok vice president in which he said that if they paid a living wage they would be out of business. Benjamin’s response: "If there’s any U.S. company that cannot pay a living wage, in L.A., or in New York, or wherever, it should be out of business. . . . If Reebok or Nike or Liz can’t do business without paying a living wage, then let’s get them out of business."

Development of the Apparel Industry. Richard Appelbaum stated up front that he is not an expert on the living wage. He is, however, an expert on the apparel industry itself. The main story in the development of the clothing industry, he said, is the enormous growth of imports in the last thirty years or so (see figure 1—Apparel Imports to the U.S., 1962-1999).

Figure 1

Figure_1.jpg (166056 bytes)

In the United States, we now import about $50 billion worth of clothes each year, approximately two-thirds of all new clothing that we purchase. These are not imports in the traditional sense—products designed in other countries by manufacturers in those countries and then exported to the United States. Rather they are designed by U.S. businesses—retailers and manufacturers—and then fabricated by a global workforce and sent back to the United States as finished garments. Appelbaum pointed out that although the primary factor in this dynamic that concerns participants at this conference is wages, the wage portion of the cost of clothing is small—about 6 percent of the total cost of an item that is manufactured in the United States and considerably smaller for imports. Increasing the wage component by itself, he said, would likely not raise the cost of the clothing significantly, and he suggests that wage pressure may not be the only factor driving companies south of the border. Guess Jeans, a few years ago, after a great deal of bad publicity regarding its attempted quashing of union organizing activity, moved 70 percent of its production operation to Mexico. Appelbaum suggested that the move was not primarily for wage considerations but because it wanted to avoid public scrutiny. He thinks it’s likely that the "search for secrecy" is one factor driving globalization. In Los Angeles, Appelbaum has witnessed what he calls the "run and hide" mentality as the industry strives to avoid the embarrassment that comes from having labor conditions exposed.

Imports are continuing to grow, and the huge workforce devoted to garment-making in Los Angeles is unusual. Mexico, which was number six or seven in exports of apparel to the United States several years ago (when China was number one), is now number one. That may change as quota restrictions are phased out in the industry (and China regains its status, perhaps), but the trend toward imports is clearly rising.

Structure of the Industry. The unique structure of the clothing industry relative to other types of manufacturing is the other important factor to consider when trying to understand apparel-making. Unlike U.S. companies that open an operation in another country (say Goodyear with its Goodyear factory in Indonesia), the apparel industry has disparate layers and lines of accountability, lines both visible and invisible.

Following the consolidation of the clothing industry in the last decade, four large retailers now account for about two-thirds of all retail clothing sales in the United States. Walmart is the largest with about $138 billion in sales last year, followed by K-Mart, Sears, and Dayton-Hudson. The retailers place orders with manufacturers who actually design the clothing and also eventually market finished garments to the retailers. Between those two activities, however, the manufacturers (a misnomer, to be sure, he said) hire independent contractors—usually in other parts of the world—who in turn employ either another layer of contractors or the garment-makers themselves (see figure 2—pyramid chart). With the growth of "private label production," retailers also sometimes hire contractors themselves (Walmart has its own name-brands, one of which is Kathie Lee, for example). The Gap, according to Appelbaum, uses "approximately a thousand factories around the world." The lines from retailers to manufacturers to contractors to subcontractors to sub-subcontractors are crosscutting. Each contractor has orders from numerous manufacturers and retailers. A tour through a garment factory in Los Angeles or in Asia or Mexico would reveal racks of clothes with many different labels, all side by side.

One major problem is that the lines of accountability—both literally and from a legal perspective—are unclear. The El Monte sweatshop in Los Angeles is an example. Retailers such as Mervyn’s, Montgomery Ward, and Miller’s Outpost had placed orders with licensed contractors who used a factory that enslaved seventy-two Thai workers for as long as five years. The retailers and manufacturers whose garments were sewn in the "slaveshop" most likely did not know of these abuses, and it took a long time to ferret them out because the connections and layers of subcontracting were so complicated and hidden. Also, because of the many layers and confusing structure—and ultimately the abuses of workers—the amount that workers are paid has not changed much in years. When the minimum wage went up most recently, for example, it meant that in some factories that workers were required to work faster. Raising the minimum turned out in a perverse fashion to be a punishment.

Figure 2

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With these two primary considerations in mind—the rising amount of garment-making occurring in other countries and the diffuse structure of the industry—Appelbaum suggested that the following questions be raised:

    1. How true is it that businesses will leave (the country) if workers’ wages are raised? What can keep them from leaving? Since the wage portion of the cost of making garments is so small, perhaps businesses are bluffing when they threaten to leave if wages increase. When is business bluffing?
    2. Who should bear the cost of an increase in labor costs? Would consumers? Students are a captive market and might pay more for a sweatshirt just to have the one with the authorized logo. Would businesses? When Guess Jeans went public in 1996, Maurice, Paul, and Armand realized $126 million, most of which was taken as compensation rather than reinvested in the company. Perhaps increased wages could be borne by the industry.
    3. How can consumers become a force in the industry? In a globalized economy, traditional "point-of-production" organizing may not work as well as it did in the halcyon days of the International Ladies Garment Workers Union. U.S. businesses can move their production anywhere in the world, but they can’t move their consumers—so far, anyway—because Americans are still the principal buyers.

Appelbaum thus suggests that "point-of-consumption" organizing might be an effective complement to traditional unionization efforts. One small way to begin, he said, is for universities to present a united front in its contracting for logo-laden clothing. This could, he said, "create an opening wedge."

Religious Underpinnings of the Living Wage Movement. Pollin told the story of how religious workers at a Baltimore soup kitchen, about five years ago, noted lengthening food lines. The new people coming were not unemployed; they had jobs, but their pay was too low to afford a reasonable diet. Among other things, this story pointed to the fact that religious leaders are primary players in the living wage movement and that the religious perspective is an important one. It is articulated by practitioners of a number of faiths. At the Wisconsin symposium, Todd Whitmore of the University of Notre Dame described the Roman Catholic social teaching relating to the subject, and David Schilling explained the work of his ecumenical group, the Interfaith Center on Corporate Responsibility.

Described by Whitmore, a canon of texts beginning with a doctrine expressed by Pope Leo XIII in 1891 and most recently expressed by John Paul II articulates such values as "the common good," "solidarity," "participation," and "option for the poor." What underlies these values is the theological premise that all life is created by God, all created life is good, and since God created everything, everyone ought to be able to share it. Catholic theology holds that humans are social by nature and by design, that the family and communities they form are necessary for human fulfillment. This is a different approach than classical liberal thought that tends to honor solely the individual and self-interest.

Catholic theology, according to Whitmore, states that the conditions leading to human fulfillment are summarized in the analogous terms "balance," "solidarity," "order," and "harmony." Pope Leo XIII first understood social (and economic) differences to be acceptable: the rich were to show largesse and the poor were to be suffer patiently. Pope Paul VI in the 1960s and Pope John Paul II now, however, refer to the rich-poor gap as a moral problem. Whitmore believes that a primary mark of egalitarianism relates to participation: Allowing participation is a mark of a just society. To make society more just, we must go first to those who are most excluded—the poor—and make sure they have a voice—and a living wage. A living wage, he argued, should be gauged to a family’s need and be enough to flourish—and have lives of dignity, to afford their own housing, and some leisure. He differentiated leisure from luxury, pointing out that Pope John Paul II strongly critiques our "consumer society," calling it "a spiritual illness."

David Schilling described the ecumenical movement against sweatshops. Quoting rabbis and popes and various protestant Christian leaders, he noted that religious groups of all sorts have long considered a living wage to be an issue of human dignity and justice. His organization, the Interfaith Center on Corporate Responsibility, has 275 institutional members that have investments in many of the U.S.-based multinational corporations. As shareholders, the ICCR has ongoing relationships with the companies, filing shareholders’ resolutions and meeting with top management on a wide range of issues, of which the living wage is but one. His group strongly urges attention to the already issued ILO conventions, UN declarations, and human rights covenants. Seeing such efforts as a moral imperative, faith-based organizations such as ICCR are actively working—in cooperation with other nongovernmental organizations (NGOs)—to address the widening gap between rich and poor. Schilling cited the experience regarding ending apartheid in South Africa as a case in point. Although his organization called on General Motors in 1971 to withdraw from South Africa, it took sixteen years—and a tremendous effort on the part of many, many groups and individuals—for that resolution to succeed. This issue, too, will take time to resolve, he pointed out, but current efforts—on all fronts—are important.

Defining and Measuring a Living Wage

Related to the issue of a living wage is the minimum wage, a social and economic construct that has been around since the Great Depression in the United States. Robert Pollin, author of The Living Wage: Building a Fair Economy, explained that the phenomenon that the religious workers in soup kitchens in Baltimore were noticing is consistent with broader statistical evidence on the relationship between low-wage jobs and poverty. The religious workers had noticed that their clients were working at minimum wage jobs, that they were living above the level of biological necessity, and they were surviving, but they were coming to the soup kitchen. The wage they earned working was not a living wage.

He argued that commitment to social justice needed to be combined with some hard economic analysis in order to consider what the benefits are of raising wages and whether it can be done without prices and unemployment rising.

Pollin’s consideration of this question began by showing the trend in minimum wage level in the United States in the last thirty years. The minimum wage peaked in 1968 at $7.49 per hour (in 1998 dollars) and is now $5.15. Thus it has fallen not just relative to the rest of the American economy, but in absolute terms. In 1968, Pollin explained, the minimum wage for a family of three would put them 17 percent above the U.S. poverty line, but now they would be 20 percent below the line. Businesses frequently say they can’t raise wages without productivity first rising. But productivity, he said, has gone up 50 percent since 1968 while the minimum wage has fallen by 30 percent.

With time-series graphs, Pollin showed that according to his analysis, there is no statistical correlation between unemployment and the minimum wage and that a higher minimum wage thus will not cause higher unemployment, one of the "negative feedback loops" that mainstream economists fear. Although this analysis includes the entire workforce, when doing the same analysis with only the teenage labor market (in which a majority of those with jobs earn either the minimum wage or only slightly more than the minimum), Pollin had similar results. There was no statistical correlation between changes in the minimum wage and teenage unemployment. A higher minimum wage would cause increased unemployment, he argued, if all else remained equal in the economy after wages were raised. The rise in unemployment then would follow from the law that when the price of something (low-wage labor) goes up, demand (to hire low-wage laborers) goes down. But the fact is, he said, that all else rarely remains equal when minimum wages go up. The most important additional consideration, he said, is that if overall demand for goods and services in the economy is strong, businesses will still want to hire low-wage workers even after the minimum wage increases. In addition, when minimum wages are raised, this is likely to raise firms’ productivity, because turnover and absenteeism would fall, which then also means that the costs of training and supervising workers would also fall.

Paul Glewwe shared data on two wage and cost-of-living studies done in Vietnam when he worked for the World Bank—one in 1992-93 and one in 1997-98. One of the poorest countries in the world for which data are available, Vietnam has been experiencing economic growth since the late 1980s. At that time the state planning system ended and the country began a market economy, and foreign investment began—especially from Korea, Japan, and Taiwan.

The 1992 survey was of 4,800 households; the 1997-98 one was of about 5,000; 4,300 households were covered in both surveys. The surveys covered households in which someone in the home had worked in a paying job in the last seven days, and it covered income, expenditures, food consumption, health, savings, and prices, among other things. In the first survey, average per capita expenditures were the equivalent of $125 per year; in the second it had risen to $205 (controlled for inflation). By 1997-98, most working people in Vietnam were farmers (58.7%), self-employed non-farm workers, such as taxi drivers or shop owners or traders (20.4%), or salary workers (20.9%), which included government employees, and those who worked for foreign-owned enterprises or joint ventures (Joint ventures are foreign enterprises with substantial inputs from government). Whereas almost no one in 1992-93 worked in foreign-owned or joint enterprises, by 1997-98, 58 people did (0.4% of the surveyed population). Of these 58, 10 worked in textiles, 19 in leather products, 9 in electronic products. Another 177 (1.1%) worked in joint ventures, which included some textile firms but also construction, agriculture, leather products, and other activities.

In both categories—foreign-own enterprises and joint ventures—employees were primarily women in the 20-29 age category. Expenditures for those working in foreign-owned enterprises was $420 annually; separating out textile workers in both foreign-owned and joint enterprises, expenditures were $303 annually; for those in leather goods $371. The poverty line in Vietnam is considered to be $133 person per year in expenditures. By that standard, 37 percent of the general population is poor. In the foreign-owned textile industry, 17.3 percent were below the poverty line. In the foreign-owned leather industry, 8.6 percent were poor.

Glewwe’s point is that Vietnam is an exceedingly poor country, but the two surveys show that it is less poor than it once was and those working for foreign-owned enterprises (who were not in the 1992-93 survey) are better off than the general population. None are in the lowest 20 percent of the income distribution. That’s still not saying much, according to Glewwe, but establishing a living wage that would be applied in foreign-owned enterprises would not help most of the Vietnamese people.

Ruth Rosenbaum, in her organization, the Center for Reflection, Education, and Action Inc., has been collaborating with workers in Haiti, Indonesia, and Mexico to develop what she calls a "purchasing power index." Its purpose is to discover how many minutes a person must work at a certain wage in order to buy the items necessary for subsistence. For example, in Haiti in 1992 a person could buy a kilo of rice with 59 minutes of purchasing power (minPP). In 1996 the same worker needed 106 minPP for a kilo of rice. In Indonesia a worker needed 98 minPP and in Matamoros, Mexico, 35minPP.

To determine minutes of purchasing power, Rosenbaum and her staff, in cooperation with other NGOs, develop a pricing list specific to the country or region they are studying. To do this they include prices from actual shopping areas that workers patronize. Each price is then converted to the number of minutes of purchasing power required for the purchase. They calculate the minutes of purchasing power needed for workers at several wage rates, which enables them to understand the degree of sustainability of various wage rates. Combining the effects of wages, prices, and inflation into a single number allows assessment of the purchasing power of a worker after putting in an ordinary work week—in any currency, in any factory, in any region. It allows calculating the effects of overtime, bonuses, or benefits—in any country or region. Because the methodology allows a comparison of purchasing power from one region or country to another, it also allows study of the effect of a business moving from one region or country to another. Because it allows comparisons over time, it allows analysts the ability to see improvements or decline of wages or changes in inflation.

Economic Effects of a Living Wage

Economic analysts discussed, debated, and asserted various views relating to a living wage. Representing a market-oriented point of view, Stephen Golub said that he is sympathetic to the objectives of student activists on the issue of a setting a living wage, but he believes that it is entirely the wrong approach. Moreover, he is uncertain whether the goal of the living wage movement is to help the workers in developing countries or to protect American workers who are hurt by low foreign wages.

He pointed out that there are problems with the data on wages in developing countries, but such as they are, he argued, they show that low wages correlate with low productivity. If productivity rises, he argued, so will wages. Korea and Singapore, he noted, are examples of this phenomenon. Both wages and productivity in East Asian countries have risen sharply, vis vis the United States, since the 1970s. Although wages and productivity were once about 10 percent of U.S. levels, a rapid growth in both productivity and wages has subsequently occurred, and wages are now about half the U.S. level. East Asian manufacturing exports began with low-wage industries—hats and small trinkets—but has since shifted to computers and high-tech goods. Malaysia is another example. Productivity growth has been slower, but it has experienced a close correlation between wages and productivity. In fact, in the mid-1990s, Malaysian wages were higher in relation to productivity than they were in the United States. Mexico’s experience, on the other hand, is more ambiguous. Until 1982 wages were higher relative to productivity than in the United States, but the fall of wages in the 1980s was due to the Mexican debt crisis. Another steady rise of wages was halted in 1994 by the peso crisis. Golub feared that observers conflate the economic crises with the effects of NAFTA.

Golub claimed that trade patterns also show that developing countries do not have an unfair competitive advantage. If developing countries’ low wages really do confer a competitive advantage, they would have trade surpluses with developed countries. But they don’t, he said, not even Indonesia. American workers, he said, can compete with foreign workers. He understands that textile workers are hurt by imports, but that is the downside of any technological change—there are losers. But most Americans gain from being able to buy low-cost goods from developing countries and from the jobs in exporting to those countries. "It [capitalism] is an ugly thing in some ways," he said. "But it’s the way it works, and all countries are now subject to that." The better remedy, he said, is to try to train displaced workers rather than block trade.

He argued that foreign investment in labor-intensive industries in developing countries on the whole has a salutary effect on those countries because without foreign investment there would be fewer jobs. Africa, for example, is largely excluded from the globalization of the economy, and most of the world’s poorest countries are there. The poverty in Senegal, he pointed out, has nothing to do with sweatshops. The foreign companies in developing countries may not be doing a great job, he noted, but they are providing jobs at wages that generally exceed the alternatives available to the workers. He argued that foreign investment contributes to the development of those countries. He agreed that no worker should be abused physically or any other way and that perhaps we in the United States can play a role in persuading countries to improve the lot of their workers, but that wages are the wrong place to focus our energies. Instead, pressure should focus on "core" labor standards, such as freedom of association and freedom from harassment. A good start, he suggested, is for companies to provide full disclosure of their working conditions, wages, and benefits.

Richard Rothstein agreed with Golub that labor-intensive foreign investment is a positive strategy for developing countries. Also, in a full employment economy such as ours, there’s no need to be concerned with competition for American workers. When American workers lose jobs in the apparel industry, he argued, they usually get better, not worse, ones.

He also argued that the student movement has made an error in focusing exclusively on companies, that the solution has, ultimately, to come from government. Companies will always be more mobile than labor and will always seek lower production costs—unless there is a universal regime of labor regulation.

Furthermore, to have a system of labor regulation we need to allow political compromise. By China joining the World Trade Organization (WTO), he said, "we’ll at least get them to the table." It will take a long time and progress will be slow, he pointed out, but he believes there can be no progress if China is outside the world trading system. He thinks it’s tactically foolish to suggest when considering a system of international labor regulation that only a whole loaf is acceptable. When the Clinton administration proposed fast-track trade agreements that included requiring labor standards last year, for example, the Democrats opposed the measure because it was too weak, Republicans because it was too strong. Had Democrats gone along for the sake of compromise, he argued, it would have been a start. Now the only way to bring pressure is company by company.

Rothstein also suggested that Golub’s analysis is flawed in two ways. First, he disagreed with Golub that the reason wages are low in countries is that productivity is low—that that is only one factor of many and that regulation of wages is necessary because labor markets are not perfect. Second, he also believes that regulating labor standards, which Golub supports, is harder than regulating wages. We still "can’t decide whether we have a right to organize in this country. We still can’t tell whether a company honors that right or not. It’s even more difficult in the Third World."

Developing countries, Rothstein suggested, are experiencing the kind of imbalance that we had in the United States during the Great Depression. International wage regulations would help to correct the imbalance just as the minimum wage helped our economy in the New Deal. Setting it would be completely unscientific; the process would need to involve bargaining between workers, companies, and national leaders. Benchmarks of reasonable and unreasonable ranges would be useful.

An important exercise in attempting to regulate wages internationally, however, is to separate out the export economy of a given country from its domestic one before comparing wages with productivity, the argument being that it’s only the export industries that affect the international economy. When considering just the apparel industry in Bangladesh, for example, productivity is about half that of U.S. workers, but wages are 3 percent of ours. To regulate wages just in the export industry is not unlike the policy in our country when the minimum wage was established, which was intended to affect only those industries that engaged in interstate commerce. Gradually there became very little commerce in the United States not judged to be interstate, but the same principle could reasonably apply, to begin with, in the international economy.

Labor representative Scott Littlehale observed that part of the problem is the declining power of trade unions. He described a situation wherein on average textile workers in the mid-1970s, because of union organizing, had elevated themselves out of poverty and were earning $10.50 per hour. Today incomes have declined because their wages have not changed. He suggested that while economists argue that the increase up to the 1970s and the decline since is because of productivity trends, he saw productivity in the textile industry increasing at an average rate of 3.9 percent. Between 1972 and 1992, he said, productivity in the cotton fabrics sector grew at an average rate of 3.1 percent in a period of real wage decline. His union argues that productivity improvements are perhaps a necessary condition for long-term sustained improvements in living standards, but not a sufficient condition.

He said that three factors helped to explain the failure of textile workers to capture a fair share of the benefits of enhanced industry productivity between 1949 and 1991. One was the increasing mobility of technology and capital, which, he said, "puts workers at a relative disadvantage." Second, unions weakened in that period. And third, purchasing power stopped growing in the latter period (between the 1970s and the 1990s).

He believes that minimum wage standards are important, that the U.S. labor movement has "arrested the process of its own decline," and that the departure from Congress of such politicians as Newt Gingrich show that anti-union and anti-minimum wage ideology is out of favor with the general public. He argued that bargaining power of workers in the United States and around the world is a challenge, however, "so long as the structure of the industry, institution obstacles, cultural obstacles, and naked power imbalances impede cross-border strategizing, organizing, and collective action." He is committed to working with a wide range of nongovernmental organizations to promote the establishment of a living wage both in the United States and abroad.

UNITE works closely with foreign trade unions and NGOs, especially in Mexico and Central America. It played a role, he said, in a two-and-a-half-year battle that pressured the Honduran government to stop violating its own national laws related to freedom of association and to enforce the rights of workers at one garment factory.

Showing figures from his analysis, Littlehale explained that collectively, the Dominican Republic, Haiti, and Central America accounted for 25 percent of apparel imported to the United States. There is an inverse relationship, he said, between where investment is going and where wages are going down. In countries where wages are increasing, growth in the apparel industry is slowest. He quoted from the United Nations Economic Committee for Latin America and the Caribbean to show that they feel there is a race to the bottom within the apparel industry:

Contributions made by Mexican and Central American maquila factories to economic growth is more modest than one would suppose upon seeing the volume of their activity. Should maquila factories multiply in their current form, countries would be specializing in supplying cheap labor, and the sector’s growth would depend on a continual cheapening of this factor. This is not compatible with a long-range strategy of growth and social equity.

Littlehale favors what he called a "human development perspective" when considering how to improve productivity. Development is "not just about increasing real GNP per person; it is about developing a range of human choice." Four essential components to human development are productivity, empowerment, equity, and sustainability. "A global purchasing power standard is consistent with each of these components," he said. There are diminishing returns to trying to sweat performance (i.e., productivity) out of people—that the results of low wages for long hours is high employee turnover, poor performance, low output and substandard quality. Anemia alone, he said, quoting World Bank figures, results in a 15 percent reduction of output.

Manufacturing sector data developed by the International Center for Productivity Comparisons in the Netherlands and data published by the ILO show that the strategy of companies in Mexico has been to make workers sweat and it is not surprising, Littlehale said, that productivity growth has been relatively poor there. Living standards do have some relation to productivity growth, he argued, and because productivity growth in Mexico was so poor, he thought Mexicans have a bleak outlook on the future when it comes to living standards. He feels that there is a gap in economic research, about whether increasing wage levels, especially at the lower end, can help to improve productivity and thereby set off a virtuous circle of productivity growth.

He said that pressuring one company at a time to improve workers’ nutrition, education, and voice is futile. Instead, he favors establishing a living wage and promoting international labor standards.

Monitoring a Living Wage

Jonathan Rosenblum, a Madison attorney and outside counsel to the International Labor Rights Fund in Washington, D.C., described limited monitoring role of the International Labor Organization (ILO), which has adopted, as part of its constitution, a set of standards for how workers, companies, and governments should behave and how they should interact regarding violations of its various conventions, recommendations, and other instruments. The ILO tries to achieve consensus among its tripartite membership—governments, workers, and employers. More than 100 countries ratified Convention 26 (passed in 1930), for example, requiring governments to establish minimum wage setting mechanisms.

Rosenblum points out that "over time, we find records of compliance with ILO principles." Still, no living wage or "basic needs" provision was established until the civil and human rights movement of the 1970s. In the mid-1970s, the ILO approved only a "declaration" calling on multinational companies to meet the "basic needs of their employees. Because the ILO is concerned about the high levels of unemployment, however, its members’ resolve to pursue the "living wage" issue may be weaker than otherwise. That the United States has failed to ratify the ILO’s conventions doesn’t offer much strength to ILO enforcement efforts either, according to Rosenblum. But the ILO, in tandem with private sector codes of conduct, he said, is a start. They are means for having forums on enforcement and monitoring of labor rights issues and of capacity-building for grass-roots monitoring in countries where worker trust can be developed. He noted that companies have generally avoided living wage provisions in their codes. "In the work of COVERCO (a Guatemalan labor rights monitoring organization)," Rosenblum noted, "even the basic wages aspect of the codes of conduct has so much porousness and so much violation that it is particularly worthy of your attention."

Jill Esbenshade is writing her Ph.D. dissertation at the University of California, Berkeley on the issue of private monitoring in the garment industry in Los Angeles. By private monitoring, she means monitoring by manufacturers, usually brand name companies such as Nike or Champion, or a retailer with a private label, or even a licensor like Disney or various universities, who hire monitors to visit and investigate the labor conditions in the factories where the goods are being produced. The monitors are either employed by the company, or, more often, they work for a commercial firm that offers monitoring services. Alternate forms of monitoring—by NGOs, for example—build bases with workers in particular factories, but they do not exist in the United States. Esbenshade’s study involved forty in-depth interviews with contractors, manufacturers, government officials, monitors, workers, and union staff.

In 1982 the U.S. Department of Labor began a monitoring program through which companies would monitor their subcontractors. Monitoring involved checking payroll timecards, making unannounced visits, engaging in surveillance, interviewing employees, and advising contractors about labor laws, violations, and necessary remediation.

Several problems occur that make monitoring difficult or ineffective. One is the high degree of mobility among businesses—contractors move, go bankrupt, open under another name. One Department of Labor study showed 56 percent of factories in Los Angeles were in business less than two years. Another problem is that companies can and do hide contractors, she found, because they are not required to disclose the entire list of factories they use. Thus they may monitor their good factories and use others for short runs or quick turnarounds. The biggest problem, in Esbenshade’s opinion, is that workers are not involved in the monitoring process. The monitors question employees on site, do not promise confidentiality, and the employees are sometimes threatened or fired for speaking out against their employers or about the conditions under which they work. Moreover, since manufacturers actually profit from violations, she says that for this reason many have referred to private monitoring as "the fox guarding the chicken coop." Universities, she argued, would have less of a problem in this regard, but she feels it would be important for a unit other than the licensing department to be in charge of the monitoring and the accepting of monitors’ reports.

She sees complications with attempting to monitor factories abroad. In Los Angeles, monitors visit factories quarterly; abroad it’s done on a yearly basis or, she says, "in a plan like the FLA’s . . . as infrequently as once a decade." Local laws vary, are complicated, and workers abroad have very little access to monitors. She described a scene of a factory in El Salvador having a phone number for workers to call that was a Guatemalan number.

Esbenshade described the complexity of the problem and suggested that it is difficult. Some of the schemes that businesses use—making workers punch in late and out early, making them take work home, demanding cash back after issuing a paycheck—are virtually impossible to catch in an infrequent visit to a factory.

She urged universities to "launch a new conception of monitoring" which would use NGOs and workers themselves to monitor more effectively. She hoped that all the schools would consider signing onto the Worker Rights Consortium.

Summary

Participants in the Living Wage plenary session seemed to agree on at least two things: First, exploitation of workers in the apparel industry does occur, and it should end. Second, records of businesses should be available so as to determine the costs of production and the wages and working conditions of workers.

Unresolved questions included the following:

  • Is it good or bad for U.S. companies to be involved in apparel manufacturing in developing countries even if wages are substandard?
  • Should the federal government attempt to draw up (or ratify) international agreements that would require improved wages and working conditions in the apparel industry?
  • How could benchmarks be established for wage rates and working conditions that would be acceptable to the businesses, to governments, and to workers?
  • If agreement could be reached on benchmarks and an international accord attained, who would monitor the agreement? How? Who would pay?
  • Short of an international agreement, what steps can be taken to assure humane treatment of workers and end exploitation?
  • How can American consumers bring pressure on businesses that contract or subcontract their work to developing countries?
  • How can federal or state governments regulate businesses?
  • How can American universities collaborate to bring pressure on businesses and/or consumers? Which organizations should it join and collaborate with?

 


Defining and Measuring a Living Wage

One of the principal tasks of the symposium was to analyze the problems in defining and measuring a living wage. Because of the importance of this task, two workshops were originally planned to deal with the consumption and wage sides of the issue. From the beginning, however, attendees felt the two issues had to be considered together. Thus the workshops were merged into one group that met all day Saturday and on Sunday morning.

This portion of the report is organized by topic rather chronologically. It ends with an agenda for actions that were discussed in the workshop and in the final session Sunday.

Conceptual Issues

Whether in industrial or developing countries, two basic approaches have been applied to income and living standard measures, and several basic methodological approaches have been developed. The basic approaches have included minimum wage standards for regions, industries, or nations; and poverty lines or living wage standards. The methodologies used to compute actual levels of these standards have been: 1) to calculate the cost of a food market basket and then multiply that food consumption standard by a factor representing how much food is related to overall living costs; or 2) to compute prices of a full consumption basket of goods and services that would define an adequate living standard. Participants in the workshop discussed each of these approaches in some detail. The majority of people in the room clearly felt that a living wage based on a full market basket of consumption costs would be the preferable approach.

People favoring the minimum wage, poverty line, and living wage approaches to income standards were present in the workshop. For example, Rothstein, who has written extensively on international minimum wages, favored the former; Rosenbaum and many students favored the latter; and others favored a poverty-line approach. Rothstein argued that a minimum wage set at a high level relative to average wages was the only way to create a realistic, enforceable standard. An advantage of this approach is that it can be easily adjusted over time as inflation and other economic factors change. He also argued for its simplicity relative to compiling the data needed for a living wage, and then trying to agree on where it should be set. He said the latter would necessarily be arbitrary and highly political.

Rosenbaum and others argued that minimum wages and living wages were very different standards and that the comparison was apples to oranges. Living wages are premised on the assumption that the wages paid must support an adequate standard of living including food, housing, health care, transportation, and other needs. That is not guaranteed with minimum wages. In many developing countries existing legal minimum wages do not come close to providing that living standard.

Others, such as Reville, Epich, and Persky, noted that the task at hand is university logo goods in the apparel industry and that setting living wages for that sector may not be as daunting a task as portrayed. Smithsimon noted that living wage standards are increasingly being written into university codes of conduct; minimum wage standards are not. Witte indicated, however, that the University of Wisconsin has over 400 items produced in dozens of countries by many companies. Whitmore responded that Notre Dame’s answer to that was initially to target monitoring and enforcement of its code on the ten largest suppliers. It was also noted that licensees may be clustered in similar regions, so that one regional market basket study could cover more than one licensee. That was questioned if the companies were in different product lines.

Rosenbaum and Brenner noted that compiling consumption data is not that daunting a task. They argued that poverty line studies, such as those employed by the World Bank, and targeted regional studies, such as those done by Rosenbaum, are not only possible but are carried out frequently.

Rothstein and Berry noted that minimum or living wages, if set too high, will not have a realistic impact on public policy and may lead to major defection of industries. Gearhart said that could also be true if universities impose too high a standard—jobs will simply shift to other types of apparel in the same countries. Coxhead noted that in Thailand in the 1990s, when real wages increased over 60 percent, almost the entire apparel industry left the country for China, Vietnam, and elsewhere.

Witte suggested that reliability will be essential and that one test might be if such measures could be defended in court. Rosenbaum replied that her methods (described below) were very rigorous and included extensive record keeping.

Basic Approaches to Computing Wage and Income Standards

The two methods of establishing standards lead to two distinctive approaches to computation. In general, debates over the level of minimum wages almost always focus on the relative wages compared to prevailing wage standards (average wages, entry-level wages, wages paid to teenagers, etc.). The concern is the economic impact of the wage level: if it’s too high, jobs will be lost by moving production elsewhere or shifting to capital intensive methods. The wage standard may then be compared to poverty or other consumption based measures (such as Robert Pollin did in the plenary session), but that is not the primary focus.

Living wages and poverty lines are always compared to some form of consumption. But the type and extent of consumption, and how data are acquired, lead to different methodologies. Some organizations concentrate on caloric intake as a very bare minimum for a living wage or poverty standard. The question is, How much does it cost to provide a family of a given size with enough calories to survive and be healthy? That amount may or may not be multiplied by a factor accounting for other consumption. The International Monetary Fund’s (IMF) rough calculation of one dollar per day per person is based on such a computation.

Other approaches both extend the concept to more detailed food baskets (such as the poverty line calculation in the United States) and to more consumption goods (which is being proposed as a change in the U.S. poverty line measurement).

Finally, the workshop focused on two types of studies used to measure consumption levels: 1) national or regional studies based on household surveys or pricing studies to compute inflation indices; and 2) targeted regional studies based on surveys of actual costs at outlets and cost estimates derived from worker surveys. An advantage of the former is generalizability and reliability based on probability sampling; and an advantage of the latter is a much more refined measure for a particular region, town, or even factory. It was generally agreed that there is often considerable variation across regions and sectors in both consumption costs and wages. Several individuals, including Witte, noted that targeted studies could be checked for reliability by reference to the larger survey studies and vice versa.

The view of the majority of people in the workshop, particularly the students, was that it was essential to use market basket consumption surveys based primarily on targeted studies. Several people questioned the motives and accuracy of studies completed by the World Bank or IMF, or price studies carried out by local government agencies. Others argued that studies done by outsiders with a strong ideological stance on living wages may also have credibility problems. One reply to that was to require that targeted studies work through local NGOs and use local interviewers and researchers.

Practical Measurement Issues

As indicated above, a number of data sources are available for measuring consumption, consumption prices, and wages. National surveys have been conducted by the World Bank and IMF in many developing countries. These are usually national probability samples, and they try to cover measures of such items as household income, wages, consumption patterns, and housing costs. As Glewwe pointed out, however, there can be considerable variation from country to country. For example, his work on Vietnam surveys indicated that the vast majority of families in Vietnam do not work for wages at all since they are farmers or small merchants. That means that for Vietnam either minimum or living wage standards may have little impact. In addition, housing was so varied in Vietnam that he felt one could not get a true picture of housing costs there. Others pointed out that the surveys are costly and are not updated regularly; thus data could quickly be out-of-date.

Price data are collected and summarized in most countries on a regular basis, among other reasons to help compute inflation rates. Some participants questioned the validity of these data, especially for the workers in the apparel sector. For example, because those workers rarely have adequate transportation, they are forced to shop in small, local stores near where they live. These stores may charge more and families cannot buy in bulk.

Finally, there are local, targeted surveys done by activist organizations. These organizations survey costs in considerable detail at the location of the factories. An example of those survey methods is provided by the Center for Reflection, Education and Action Inc. (CREA) (see Appendix D).

One of the problems that stood out at the conference was that of getting adequate wage data in the apparel industry. Glewwe was able to provide some for Vietnam, but the subsample used was very small. The subsample of workers might be larger in a country where more people work for wages. No one was able to provide a source for systematic industry-based wage data. That does not mean that some companies might not provide it on a selective basis, but only that national or systematic databases do not seem to be available. Participants with experience conducting targeted, local studies claimed that they could get wage slips directly from factory workers and determine wage levels in that manner. They also have worked with companies that provided them with full wage schedules for factories.

Measuring Consumption. There is wide variation in the approach to measuring consumption prices, the range of goods and services included, and the way price ranges are factored into an index. Many national-level studies rely primarily on food and use caloric intake as the common denominator across regions and countries. That provides some comparability and is relatively simple and inexpensive, although it does still require assumptions concerning how calories are obtained and how cost ranges are handled.

More extensive consumption measures may include food based on nutritional standards (such as the U.S. Department of Agriculture’s recommended standards) rather than simple calories, and may include many other forms of consumption. For example, CREA includes shelter for a range of housing types, water, energy, clothing, transportation, health care, education, cultural events, child care, and a modest amount of savings in calculating their purchasing power index (PPI). In computing these costs, including food estimates, they usually rely on the least expensive products and the average of low, medium, and high prices when differential prices occur in a region or location. CREA uses local NGOs and local citizens to do their local price surveys and estimates. They also sample different types of providers to obtain a range of prices for commodities and services.

Other problems with measuring consumption prices have to do with location. That is, rural prices and sources of food may differ from those in the cities. In addition, the pattern and available goods may differ considerably for farmers and factory or industrial workers. These problems again suggest the need for local, targeted studies.

Using Multiple Data Sources. There was considerable discussion, sometimes heated, concerning the credibility and appearance of credibility of different sources and methods of gathering consumption and wage data. Witte, for example, wondered how credible data gathered by organizations clearly intent on increasing wages in an industry would be with government agencies and corporations. Others questioned World Bank and government data because of their ties to corporations.

Most seemed to agree that if multiple sources of data collection and measurement methods came to similar conclusions, credibility would be insured. If they were not correlated, further research would be needed to discover the most accurate measures.

Wage Data. Nearly everyone agreed that collecting accurate, up-to-date wage data on the apparel industry was difficult. Industries are not forthcoming in providing that data. Given the decentralized structure of the industry, with extensive use of subcontractors and middlemen, the major retail corporations do not directly employ workers or set their wages. National surveys may break out wages by sector, but as Glewwe’s data on Vietnam indicate, the sample sizes of these subpopulations will be quite small and apt to be outdated quickly. Local, targeted studies relying on worker interviews and samples of wage slips may suffer the same credibility problems as consumption prices.

To some degree, getting apparel industry wage data may turn out to be more an issue of enforcement and monitoring than in setting living wage standards. The reason is that one can use wage assumptions and reasonable working hours to compute how they translate into ability to consume. For example, in computing their PPI, CREA converts all consumption into minutes of work at an assumed wage, usually the national or regional legal minimum wage. They then assume a 48-hour work week and an average family size and derive what level of consumption would be possible at that wage. Once actual wages are uncovered through early monitoring, they can then be translated in exactly the same way and used to set appropriate standards for the location.

Setting Wage Standards

Once consumption price data are available, what wage level should be recommended? That depends on a number of technical assumptions that the workshop participants felt were important, but probably manageable. It also depends on where precisely the relative wage is set, which a number of people argued had to be somewhat arbitrary, and on which there was less consensus.

Technical Issues. The technical issues consist of determining a certain family size and structure, the number of wage earners in the family, how to include company-provided benefits, how to include taxes, and a family’s access to outside resources such as garden plots or child care. Different studies handle these issues in different ways. For example, the National Labor Committee study done by Columbia University graduate students in El Salvador, which was released just before this symposium, assumed average family size for worker families (4.3 people). Although CREA often also uses average family size, Rosenbaum recommended initially using a very conservative estimate of one worker supporting herself and one minor child. Other approaches discussed included using variable family sizes and number of workers and determining a matrix of consumption costs and wage levels needed. That approach is similar to varying poverty lines by family size, as is done in many countries.

There was greater agreement on other topics. Most agreed that net, not gross wages should be used, and that benefits should be included in income calculations. Some implied benefits should be excluded unless they provided basic needs (such as health care). And because most apparel workers live in urban areas, garden plots should not be considered a major source of food. Child care, even if provided by relatives, could be valued in money terms and included in price formulas.

The Level of Wages. There was considerably more difference of opinion on the wage levels to be recommended. However, the majority of participants in the workshop, including most students, felt a considerable increase in wages, and one providing workers with the ability to purchase a comprehensive set of goods and services, was preferable. Several people felt that the wage level needed to be set higher than, but within reasonable range of, the legal minimum wages or prevailing wages in regional or national export industries. They argued that increases much higher than that would either not be taken seriously by policymakers or would lead to industrial relocation.

Others suggested that wage level recommendations should be compared to a range of measures, including national household income data and national income distributions, as well as prevailing wages across a range of industries. For example, if the apparel export industries are paying higher wages than indigenous industries, a major change in wages in those industries might lead to relocation of a primary sector. That seemed to be the case in Glewwe’s Vietnam data. On the other hand, the real wage increases in Thailand in the 1990s, which led to reallocation of apparel manufacturers to other countries, were obviously led by other industrial sectors that paid considerably more than the apparel sector. In either case, the relevant comparison is informative.

The majority present felt that these comparisons were secondary to, and perhaps even harmful to, the cause of setting a living wage based on purchasing power. For example, Smithsimon argued that if living wages could be enforced everywhere, which is the goal of the student movement, industries could not "cut and run." Others pointed out that these corporations have very high profit margins, can afford to pay people like Michael Jordan millions of dollars per year for advertising, and thus can afford to raise wages substantially. This group clearly favored wages considerably above legal minimums or published poverty lines in most of these countries.

In the final Sunday morning session, there was some bitter reaction against the summary provided on Saturday by the economic effects workshop that concluded that the El Salvador study recommendation of a 300 percent increase in wages was considerably too high. Several students derided the economists for this statement and reiterated that this symposium was being held because of student protest. Others repeated a theme heard in Saturday’s sessions, that insisting on a high living wage produces moral suasion and puts pressure on apparel companies, particularly if students organize to boycott logo products.

Research Sites, Targeting, and Geographical Considerations

Near the end of the workshop, the discussion turned to the form and location of future research. There was considerable agreement that some form of local, on-site data collection on purchasing power and prevailing wages was necessary. The advantages of that type of research are that it provides finer data than national household surveys and that it is needed to get an accurate portrait of regional industry conditions. Those studies are also considerably less expensive than national household surveys and thus could be updated more often. For example, Rosenbaum indicated that CREA studies cost on average $25,000 per study. National household surveys may cost $.7 million to $1 million.

The disadvantage of local surveys is that they cannot be generalized to larger populations across a country. There are also sampling issues concerning both household consumption and wages and prices acquired from surveying retail outlets. If either the household or retail outlet sample is skewed, the results will be biased even for the intended target population of workers. Finally, unless one is willing to apply national-level indices of wage and price increases, the studies will have to be updated regularly. This is critically important, if prices accelerate as much as Rosenbaum reported for a study in Haiti, which showed that the purchasing power in minutes of work to buy a kilo of rice doubled from 59 minutes in 1992 to 121 minutes in 1995 (see Appendix E). A similar increase was reported from 1992 to 1994 in the Maquiladora region of Mexico.

If local studies are required, the question becomes, Where should they be located? There was clear consensus that studies should be done in several areas of the world that are most prominent in logo apparel manufacture. Both in the living wage workshop and in plenary sessions, it was suggested that the location of the largest vendors’ factories would provide a guide to site selection. Whitmore reported that that was the approach being used by Notre Dame in its monitoring pilot project. The same is proposed for the California system (see Appendix F).

Other considerations were also discussed. It was generally felt that one location should be in Central or South America, with Mexico and El Salvador most often mentioned. It was also noted, however, that there is growing apparel production in the Caribbean Basin, a point reinforced by UNITE representatives in the final session on Sunday. It was also felt that another study should be located in East or Southeast Asia. Finally, there was opposition expressed both in the workshop and plenary session to doing a study in China because of its failure to recognize unions.

In summary, participants agreed that local market basket studies should be commisioned in regions that produce a significant amount of collegiate apparel. For apparel produced in other regions, and until local studies could be carried out, available national and international data should be used to set wage levels. By using these two techniques simultaneously it may be more difficult for companies to avoid paying a living wage by shifting production to regions that have not been studied. Each technique can also be used to verify and investigate the results of the other in order to further an understanding of how to set wage levels best.

Future Actions, Organization, and Time Lines

Next steps were discussed at the end of the workshop and in the final wrapup session. Those discussions became somewhat disorganized as people began to leave. The topics included: 1) the possibility of creating a university consortium to further research and monitoring efforts; 2) how that consortium should be organized and governed; and, 3) possible timelines for future research and action.

University Consortium for Sweatshop Research and Action. In the workshop a number of advantages of a university research consortium were discussed. Those included: insuring a broad set of universities with high industry standards; cost sharing; increased moral pressure on logo merchandise companies; increased credibility in terms of research findings and recommendations; and sharing the burdens of implementing research and monitoring activities. In addition to Wisconsin, the universities most often mentioned as possible participants were Notre Dame, Brown, Duke, Georgetown, Michigan, University of California, Berkeley, Columbia, and Boston College.

In the final reporting session there was a somewhat confused discussion of organization and governance. The confusion resulted from a failure to distinguish between the organization that should approach individual administrations concerning involvement and membership in such a consortium and governance of the consortium itself. No votes or formal decisions were made concerning a possible governance system for such a consortium. Individual students, staff, and faculty volunteered to approach administrators at their home institutions concerning membership in such a consortium. Todd Whitmore agreed to serve as an initial coordinator for people to contact with questions about the coalition and proposed research and funding.

Timelines. Finally, an action timeline was discussed in the workshop, and it was quite consistent with a timeline prepared by the monitoring group. The general outlines were that the consortium or task force should be organized by March 1, 2000, following this report being submitted by January 31, 2000. That would provide only two months, however, for initial creation of the consortium and organization and contracting for a pilot project. According to this scenario, the first pilot, probably in Mexico or El Salvador, could begin as early as March 1, 2000. During the same period, fund-raising could occur, including seeking foundation support, the governance of the consortium could be finalized, and future research planned.


Economic Effects of Setting Living Wage Standards*

The working group on "Economic Effects" conducted a highly constructive and stimulating discussion on Saturday and Sunday, November 20-21. We believed we had two interrelated issues to consider in our workshop:

  1. What are the basic economic questions surrounding the establishment and enforcement of living wage standards in factories throughout the world that produce college logo apparel?
  2. What types of economic research should be conducted to help us better understand these basic questions?

While these two questions overlap, our discussion was basically divided by the two days of our workshop: on Saturday, we discussed the first question and on Sunday the second question. In what follows, we attempt to summarize the discussions that took place over those two days.

What are the Basic Questions?

There are really two sets of issues at play in trying to improve work and living conditions for workers engaged in producing college logo apparel. The first is the raising of wages and the creation of decent work environments. The second is having firms operate in a transparent way, which entails allowing significant disclosure of their activities, opening themselves up to meaningful monitoring, and allowing workers democratic rights to associate and organize collectively. Obviously, both types of concerns are of great importance. However, we felt that, of the two, the second consideration—establishing transparency and democratic rights for workers—is actually the more significant. The reason this is so is that only in an open work environment, in which the firms are subjected to meaningful monitoring, will any living wage and workplace standards be sustainable over time.

Demand Elasticities for College Apparel. If wages rise and workplace conditions improve at the plants producing college logo apparel, that should then mean that the costs of producing this apparel will rise. Those costs will have to be borne somewhere between the point of producing the apparel and its final sale. It does not follow that these costs have to be borne by the final consumers of the apparel through price increases. The costs could also be absorbed by the profits of the companies marketing the apparel and its allied subcontracting firms; by the wages of more highly-paid workers in the affected firms; or by the colleges and universities that earn fees through licensing their logos.

Nevertheless, as a fallback position, it is worth asking whether, if prices in consumer markets were to rise for college apparel, demand for the apparel would fall by a significant amount. If it did, that could bring cutbacks in the production of the apparel, and subsequent job losses for the workers producing these goods—precisely the type of unintended consequence (or "negative feedback loops" to use Chancellor Ward’s term) that supporters of living wages need to commit themselves to avoiding, as much as possible.

In the judgment of our working group, relatively small increases in college apparel prices, on the order of 5 percent to 10 percent, would not cause a decline in the demand for these products, especially if it were clear to consumers that the price mark-up was paying for higher wages and better living standards for the workers producing the apparel. Indeed, we felt that if it was clear to consumers that these products were made in a "kosher" way, that demand might even rise after a price increase.

Some members of our group felt that it would be appropriate for the universities earning licensing fees to themselves absorb some of the cost increase, at least in the initial phases of a living wage regime. This would mean that prices for these products could rise more slowly than otherwise. As such, we will have the opportunity to observe in increments the degree of demand elasticity for putting "kosher" college apparel on the market.

We drew on a series of examples in formulating our judgment on the relative inelasticity of demand for college apparel due to a living wage-induced price increase. These examples included the experience Campbell’s Soup had with farmworkers organizing unions at the farms producing tomatoes; the marketing of non-Bovine Growth Hormone milk; and, more broadly, the organic food industry.

Where to Set a Living Wage Standard? There are two basic standards through which one might establish what constitutes a "living wage" in any given setting. The first is a "consumption standard," which establishes a living wage based on the costs of purchasing a basket of consumption goods that meets the basic needs of a worker and his or her family. The second is a "local conditions" standard which, while recognizing the central importance of workers meeting their basic needs, also takes into account the status-quo wage standards in a given labor market.

Intuitively, the consumption standard would seem to be the more appropriate measure, since it would ensure that the basic needs of workers are met. However, if we rely exclusively on a consumption standard, we may produce serious negative feedback loops. These could include the following:

  • Firms may concentrate their production of college apparel in high-wage countries, moving more of their other operations to the lower-wage economies. This would enable them to avoid facing significantly higher labor costs of college apparel production in the low-wage countries. Perhaps even more important, it would also allow them to avoid any possible negative publicity resulting from producing in a very low-wage (sweatshop?) environment. We found it telling that the T-shirts made with the logo of Students United Against Sweatshops are themselves made in Bangor, Pennsylvania, supporting the view that firms may choose to avoid low-wage countries altogether when faced with the possibility of receiving negative publicity for locating college apparel production in low-wage countries.
  • Firms could maintain production in the low-wage economies, but create small high-wage enclaves within them. This would certainly benefit those workers lucky enough to have jobs within the high-wage enclave. But because wages would be set at a level well beyond what the rest of the market will bear, the living-wage standard within the enclave will have little positive effect on the rest of the local labor market. It was a premise of our group that a major goal of setting a living wage standard for college apparel producers was also to raise wages and work conditions for workers producing other products as well—that is, to create positive "ripple effects" throughout local labor markets. We are concerned that setting the wage too high relative to local market conditions will minimize the possibilities for positive ripple effects.
  • Setting the wage too high relative to local market conditions could create difficulties for monitoring. This is because a strong incentive would be created to circumvent the wage mandate. For example, workers could sell a share of their high-wage jobs under the table to their relatives or friends; so that, in fact, multiple workers are employed at a single "living wage" job.

Given these concerns, we think it is necessary to combine a consideration of a consumption standard with a clear assessment of the local market conditions. The question we asked was: "What would be the wage bargained for by workers if they were allowed to organize and bargain collectively in a free, democratic environment?" Of course, that question itself will not yield any clear-cut answer. For one thing, few countries, especially in developing economies, have strong labor histories with an established tradition of collective bargaining rights. In addition, even if free collective bargaining did prevail, the outcome of the bargaining process would depend on local labor market and macroeconomic conditions. For example, the wage bargain achieved by workers in a full-employment environment would be very different from one achieved when the unemployment rate is 25 percent of the workforce. Nonetheless, we felt that if appropriately applied, this approach to gauging local market conditions was a good beginning point.

We also felt that positive collateral effects would emerge from working with this standard of measuring local market conditions. That would be to strengthen demands for open bargaining and workers’ rights. As such, working from this principle for measuring a living wage would also reinforce our initial emphasis on the centrality of openness and transparency among the firms producing college apparel.

Broader Effects of Setting Living Wage Standards

If a living wage standard applied only to workers producing college apparel, its effect on the low-wage labor market would be minimal. It is therefore important that the wage mandate have broader "ripple effects" throughout the labor market not covered by the living wage mandate. Our group considered what some of these broader ripple effects might be.

First, we felt that all workers in a given plant will receive the mandated wage increase, regardless of whether they happen to be producing college apparel. Other workers, earning above the mandated wage but within the same broad "wage contour" would also likely get raises, though by a lesser proportion than those getting mandated raises.

Second, we felt that establishing a living wage mandate for college apparel workers could exert broader upward wage pressure in local labor markets. But, as discussed above, this would likely occur only if the "living wage" standard were set in conjunction with local labor market conditions. If the wage were so high as to create a "high-wage enclave," businesses in other plants would be able to claim more legitimately that the mandated living wage has nothing to do with local wage norms.

Finally, we felt that the most powerful ripple effect would be on the affected firms themselves. These firms would benefit from the positive publicity of eliminating their sweatshops in firms producing college apparel, and may then be more willing to raise wages in their other plants. This would be true especially if they see that the demand elasticity for "kosher" products is relatively weak.

Employment Effects. The primary traditional argument against any minimum wage mandate is that it creates job losses for low-wage workers. Obviously, we are concerned to avoid this outcome. There is, by now, a substantial literature that questions whether job losses will necessarily ensue from raising minimum wages—the most prominent contributions to this recent literature being the work of David Card and Alan Kreuger. For our purposes, however, the fact that we expect weak demand elasticities for the college apparel market itself suggests that negative employment effects will be weak, if they occur at all. This is because if demand for college apparel doesn't fall when the price of the apparel goes up, then there would be no incentive for firms to lay off workers, even if they are being paid a living wage. Indeed, we even considered the possibility that demand for the apparel might rise, as long as it was clear to consumers that they were paying for "kosher" apparel. Establishing a living wage thus may even yield some positive employment effects.

Productivity Effects. Productivity should rise for two reasons. First are the "efficiency wage" or "soft productivity" gains that will result from workers being in a cleaner, more open environment and getting paid more. This will reduce absenteeism and turnover, increase effort, and thereby also reduce supervisory costs. There is little evidence we can cite as to how large this effect will be. There should also be "hard productivity" gains when, faced with higher wage costs, firms substitute machines for people in their production processes.

Both types of productivity gains could cause employment losses, or at least a reduction in the rate of job creation. This is because, by definition, increasing productivity means that fewer workers are needed to produce a given level of output. However, we do not regard productivity gains as being basically undesirable. It is of course better for workers to earn higher wages in a better work environment, and, under most circumstances in the apparel industry, to be able to produce with the assistance of effort-reducing machines. We do not think that the negative employment effects here will be significant; and in any case, these employment effects will be swamped by the macroeconomic factors causing fluctuations in employment opportunities.

Redistribution Effects. Redistribution may occur in two basic ways: from firm owners to the low-wage workers, but also from higher-wage earners to low-wage earners. In almost all cases, we would regard it as desirable that there be downward redistribution from firm owners to the low-wage workers. We would also generally favor some "wage compression" between low- and higher-wage workers. Nevertheless, since higher-wage workers, in developing economies especially, are themselves far from affluent, we would not want to see the bulk of the living wage raises coming out of wage compression. Again, the fact that we are confident that demand elasticities for college apparel goods are weak suggests that the primary form of redistribution can come from consumers of college apparel to the low-wage workers.

Economic Research Approaches

The type of research projects we are proposing are, for the most part, what we would consider "action-oriented" research. Most of the projects can be done fairly quickly and inexpensively. We think that many of the "quick-and-dirty" type studies can yield extremely useful information, information that would get us far toward understanding the issues surrounding the economics of a global living wage for the apparel industry. At the same time, even "quick-and-dirty" studies take real effort, care, planning and, inevitably, money, to actually get accomplished.

Demand Elasticities. There are two basic ways that we think this question can be fruitfully researched. The first is to look directly at the market for college apparel. The second is to look at analogous market situations. Some examples of how one might look at both markets are as follows.

College Apparel Market. We suspect that significant price differences already exist within the college apparel market. We could just pull that information together to get a better sense of the factors other than pure price that influence demand. As noted above, we also think that the price elasticity of demand would be weaker still once consumers recognized that, with their higher prices, they are paying for goods produced by living wage workers.

Members of our group mentioned that studies along these lines have already been conducted at Marymount University and the University of Maryland. One important job would therefore be just to pull together what has already been done, and evaluate this work. Richard Freeman of our group had himself begun some preliminary studies to test price elasticity of demand for Harvard logo products. He proposed selling two sets of Harvard logo products—one that was higher priced, but was clearly marked as having been produced by living wage workers. Because of some legal difficulties with firms licensing Harvard’s products, he may not be able to complete this work, but similar simple tests, conducted at a range of universities, could yield very useful information.

Analogous Market Situations. As noted earlier, there are many analogous situations worth examining. These include:

  • The experience of Campbell’s Soup, after it accepted the terms of FLOCK, the farmworkers’ union that organized at the farms that were suppliers for Campbell’s;
  • The rug market in Europe, in which rugs are clearly marked as having been produced without the use of child-labor;
  • The market for dolphin-free tuna, which has come to dominate the tuna market, even though it is more expensive;
  • The organic food market;
  • The market for "fair trade" goods, which is becoming increasingly prominent in the protest movement against the World Trade Organization.

Cost Structures in the Apparel Industry. Having a sense of the industry’s cost structure is crucial for knowing how much total costs would change after the university apparel licensers imposed a living wage mandate on their suppliers. If the cost increases are a relatively small fraction of total costs, then that would imply that possible negative effects from the living wage mandate—including higher prices, job losses, plant relocations—would be correspondingly small.

Richard Appelbaum of our working group is familiar with the existing evidence on cost structures in the U.S. apparel industry. That would be a readily available data source. It is also possible to generate reliable estimates of industry cost structures using existing input-output data for the U.S. economy. Robert Pollin has already used this data source for his living wage impact study for the city of Los Angeles. The results of his research using this method were comparable to the results obtained using other research methods, including direct interviews of firm owners.

Of course, knowing what cost structures are in the United States is not adequate for understanding the impact of living wage mandates for firms located throughout the world. It will inevitably be more difficult to obtain reliable cost data for plants located outside the United States. At the same time, there are some quick-and-dirty techniques that can be used to generate what are likely to be pretty reliable estimates. One can, for example, work from the U.S. input-output data to obtain estimates for non-labor costs. Those non-labor cost estimates are likely to be a pretty reliable benchmark of what non-labor costs are in other parts of the world; at the least, they would define what constitutes an upward bound of total costs. One can then plug in data for wage rates in other parts of the world to generate estimates of total costs in these other locations. With such estimates of total costs, one can then break down these costs into their component parts to generate estimates of how much a wage increase in any given plant would add to total costs.

In addition to undertaking studies of these sorts, we understand that there are perhaps studies and/or data from the World Bank and the United Nations that we could use in generating cost estimates to at least check the results of our own research methods.

Wage Increases and Ripple Effects. As noted above, our group felt the various ripple effects of setting a living wage minimum for college apparel producers would be at least as, if not more, important than the direct effects of such a mandate. It will be important to know how best to set a living wage minimum so that it maximizes positive ripple effects, such as pushing up wages for all workers within a covered plant and exerting upward wage pressure throughout a local market. We will also want to know the extent to which firms might respond to a living wage mandate by relocating to high-wage regions and/or setting up small high-wage enclaves within a select few low-wage countries.

We felt that one way to get some sense of these possible ripple effects would be to survey and interview managers of the covered firms directly. Members of our group have had experience with such methods, and, perhaps surprisingly to some, they do generally yield reliable results.

Using Collective-Bargaining Outcomes to Establish Living Wage Benchmarks. In addition to calculating a living wage based on consumption standards, we noted above that a reasonable additional consideration in setting living wage standards is to try to calculate where wages would be set through collective bargaining, assuming a free, democratic bargaining environment. But we also recognized that such a free bargaining environment rarely prevails in developing economies. Moreover, the outcome of even a free bargaining situation would depend substantially on the unemployment rate and other measures of aggregate demand for labor at any given time. As such, it would take great care to establish how to set benchmarks appropriately that could serve as proxies for a reasonable bargaining environment in any given country. Certainly, conditions in some countries—that do have something resembling a fair bargaining environment—would have to proxy for conditions for other countries, which do not have a fair bargaining environment but are at similar levels of development.

 


Monitoring a Living Wage

The group began its discussions on Saturday, Nov. 20, by selecting Medea Benjamin of Global Exchange in San Francisco as moderator, introducing each other, and hearing what everyone wanted out of the session. The first day of the conference had been spent primarily describing the background of the living wage issue, with some brief accounts of codes of conduct, the Fair Labor Association (FLA), and the Worker Rights Consortium (WRC). The second and third days were spent discussing details of the codes and next steps for pilot projects and research.

Monitoring Organizations

Jonathan Rosenblum outlined the differences between industry, human rights, and university-based monitoring proposals and how they were developed. He said the 1990s effort to control working conditions and wages in the fractured contracting system of multinational manufacturing has gone through several iterations. These include establishing individual company codes of conduct, followed by creation of the FLA, an early university initiative by Collegiate Licensing Company-represented schools, and now the proposal for the WRC.

Code of Conduct. For eight months—from August 1996 to April 1997—the FLA’s predecessor, the Apparel Industry Partnership, met to establish a code of conduct for humane labor conditions by apparel and footwear manufacturers. President Clinton created the task force to respond to problems in garment manufacturing plants in the United States and throughout the world. AIP included unions, companies, human rights groups, and, toward the end of its work, one university—Duke. Among other things, the code limited regular work hours to 48 hours per week, plus 12 hours of overtime per week; required one day off in every seven-day period, and required that no employees be younger than 14 or 15, depending on the country. Other provisions followed the basic framework of rights and standards established by the International Labor Organization.

Universities, on the whole, were not involved. Students were active, but not schools themselves (other than Duke University, whose students and administrators drafted their own code, after which the school provisionally agreed to participate in the AIP). Students then began to focus on one segment of the manufacturing trade where they might hold sway: the estimated $2.5 billion college merchandise industry that included baseball caps, mugs, banners, sport uniforms, jackets, and T-shirts. With a major stirring of campus activities such as sit-ins and teach-ins, they got their administrations to join in the discussion and implementation of the code. Many colleges adopted the AIP code or adapted it to their use.

Fair Labor Association. The AIP code alone soon proved to be inadequate for many students, labor right activists, and nonprofit groups. They argued that universities were left out of the mix and that corporations had too much power in setting the code. The White House-sponsored coalition of corporations and human rights groups came up with the FLA as the next step in implementing protection for workers. Some colleges and universities started working with the FLA as a way to reach higher standards. By June 1999, more than 100 campuses had affiliated themselves with the FLA.

Rosenblum spoke at some length about the FLA. He said the FLA code embodies nine elements, including child labor, forced labor, freedom of association, collective bargaining, and more—all part of the International Labor Organization standards.

A separate FLA text defines monitoring functions. They include both internal (within company) and external monitoring. Internal monitoring includes such things as the company communicating standards to workers, posting the code of labor and making it accessible to workers, ensuring that education goes on with management and workers, making surprise and announced inspections, and submitting all of the work to an independent agency that oversees the monitoring. In addition, there needs to be outreach to NGOs to help oversee and implement the internal monitoring.

External monitoring is, in essence, a verification process of the internal monitoring—that things are being done as they are supposed to be. It requires that NGOs be included in communications with workers since they otherwise would not communicate fully with management or official auditors. It also requires that a company submit its entire process, not just a single factory, for critique.

Also, factory visits will be done by sampling based on risk of violations, with the requirement of reaching 30 percent of all factories within three years. Rosenblum also said there has to be a free-flowing complaint process so that any worker at any time can complain freely, going over the head of the company and its monitors, straight to the FLA board.

Rosenblum said questions remain with monitoring—how factories get chosen, how compliance is defined, and how the independent FLA board can be governed. He said the biggest problems students have with the FLA are with the governance system and with public reports and disclosures.

Several people questioned Rosenblum, including Jenny McDaniel, who asked why the FLA is considered a "coverup" by students. Rosenblum said a lot of that has to do with the governance. Students said the FLA is controlled by corporations. Rosenblum replied by explaining the structure of the FLA. It is composed of six corporate members, six NGO or human rights members, one university member, and one chairperson chosen by both sides (NGO and corporate) who is to be neutral. Rosenblum said that in his view, the bias of the board’s day-to-day operations is in favor of the NGOs because decertification of monitors and companies may be accomplished by a simple majority vote. He acknowledged, however, that fundamental change—to throw out companies or change the charter or other levels of standards—requires a two-thirds vote by companies and NGOs.

David Schilling raised a number of problems with the FLA, especially in relation to the work of the Interfaith Center for Corporate Responsibility (ICCR). He said his group is very committed to the notion that companies that do their own internal monitoring need an independent assessment of what’s going on. He suggested some principles for monitoring:

  • Indigenous groups in and around the factory zones have a lot to contribute to a monitoring system.
  • Local NGOs can be at a disadvantage with auditors. There can be lots of manipulation by auditors to get what they want, including information and compliance. There is also an uneven balance of power between local NGOs and outside auditors. The FLA does not go far enough in dealing with these problems.
  • Key components that need to be addressed are the wage issue, especially a living wage, and the right to organize. There is also a need to address the issue of accountability and the issue of creating a standard of "need."
  • The ICCR and NGOs are concerned about turning to PricewaterhouseCoopers and other professional auditors because they are not seen as independent external monitors.
  • More disclosure is needed so consumers can make better judgments about what to buy.
  • The wage issue is primary because it goes to the core of whether or not workers have choices. Ignoring the wage issue is anti-productive to the anti-sweatshop movement.

Schilling repeated that the ICCR is bothered by the fact that under FLA rules it takes a two-thirds vote of each side to move from a "basic needs" standard to a "living wage" standard.

Medea Benjamin said she was also dissatisfied with the FLA because it does not distinguish between a living wage and a minimum wage. She also said NGOs lack of participation and control over the process. She is concerned about the issue of disclosure on topics such as location of factories, audits, wages, hours worked, conditions of work, and so on. She is also concerned about the whole monitoring process.

Pat Roberts asked how universities are represented on the board. Rosenblum said that they have provisionally selected co-chairs from Duke and Notre Dame to serve as board members of the university advisory council. He also said that more than 100 universities have affiliated with the FLA as of June 1999.

Benjamin asked what "higher standards" are not met by the FLA. Rosenblum said that, as as contrasted with those sought by students, the standards of the FLA do not include full disclosure of the location of all factories, sanctions with respect to freedom of association, or a living wage standard. He also said that when there are complaints, the accuser should have the right to decide whether the information is made public. He noted there are ten points of required public disclosure in the FLA standards. He also noted that he supports higher standards but that these higher standards should not exclude other companies since the FLA code is consistent with International Labor Organization standards and can at least serve as a minimum guideline.

A member of the Brown Labor Alliance asked whether companies that comply with FLA standards could get a "no sweatshop" label? Rosenblum said no, even though the Labor Department has said that concept is a good way of riveting public attention on the issue of sweatshops. They have also discussed the notion of a label restricted to something that "meets FLA standards." He said that it would be misleading to have a "no sweatshop" label for any organization since the system cannot completely get rid of bad conditions and sweatshops.

A member of the Brown Labor Alliance also noted that having a limited "FLA" label would be misleading because it would imply fair labor standards, while, in his opinion, the FLA does not guarantee that. He also said he takes issue with the fact there is only one university member on the board. He has a problem with lumping all human rights groups and NGOs into one group, since there are many groups with many different ideas. He wanted a separate place for unions. And he said he questioned whether corporations should be in the FLA at all since they do not have any inherent interest in monitoring at all.

Tanya Saunders of University of Michigan suggested that the real issue is the need to change the corporate culture. The corporate drive is for profit, she said, but they also need consumers who will buy their products. Thus corporations need to be involved in the process. She also said that universities should not be completely dependent on the FLA to bring about change.

Mike Gonzalez of the UW-Madison said he was concerned about labeling since it is impossible to certify any given corporation because of their corporate structure and the nature of contracting and subcontracting. Companies will exploit that structure to their advantage. Companies such as Nike take out ads boasting about their "fair labor standards."

Workers Right Consortium. Jill Esbenshade made a presentation on the Worker’s Rights Consortium (WRC). She said the WRC is an organization in formation. One of its main principles is to allow local NGOs access to factories in order to educate workers about codes and develop trust with them. WRC wants to start pilot projects to begin testing educational strategies and a range of complaint mechanisms with workers in different countries. The WRC would also call for full disclosure of contractors, location of factories, production processes, product chemicals used, and much more. She said that WRC would use local organizations to verify company-reported information with the workers. The WRC also wants to build long-term relationships between NGOs and workers, as well as between the WRC itself and the local NGOs. She noted, however, that this would be difficult in countries that do not allow NGOs.

Tanya Saunders asked what could be done where NGOs are not allowed. Esbenshade said a more traditional form of monitoring could be used, such as sending in an auditor. She said the FLA monitoring would average 10 percent of the contractors each year. This means some might not be visited by independent monitors in a decade. She said factories need ongoing monitoring, and that would work under the WRC because the services of local NGOs would be cheaper and more reliable. She also said the WRC would attack not just the clear instances of violations, but also business practices that encourage the development of sweatshops, including secrecy, mobility of factories, and other topics.

Jenny McDaniel asked how the WRC would be funded, noting that the FLA gets its money from 1 percent of royalties. Esbenshade said funding could be the same.

Tanya Saunders asked about child labor, specifically whether there is a concession made to poor families who need everyone to work. Esbenshade replied that a living wage would make child labor unnecessary in the first place.

The WRC has been criticized because its plan relies on worker complaints but does not have a broad monitoring system. But supporters said they want to stimulate workers to organize themselves and investigate when a claim is made. The real picture of what is going on in a factory is unlikely to emerge from sporadic visits by representatives from accounting firms. Instead, they want to use nonprofit groups, labor groups, and university experts to set up a monitoring system using local representatives to make employees aware of new regulations and make them comfortable about reporting violations. This is a long-term solution that needs a pilot project in order to be a reality.

There was also a discussion of whether the group should endorse the WRC. A wide range of views was expressed and no consensus was reached. The student majority favored WRC over the FLA. Some recommended that universities should adopt the principles of WRC and wait to see how the organization develops. Some people were concerned that endorsing WRC would force FLA out and not reform it. Others felt endorsing WRC would help reform FLA. Esbenshade said including the WRC in the recommendations would not inhibit universities from doing pilot projects without the WRC if they so want.

Existing Monitoring Efforts and Costs

The group then discussed existing efforts and the costs of monitoring. Lee Tavis said he likes the idea of a pilot project since there is a lot to be learned. He noted that Notre Dame struggles with the costs of monitoring, and with the problem of developing relationships with workers. There is also a problem of breadth versus depth with regard to monitoring, because of the costs. Each PricewaterhouseCoopers audit costs Notre Dame between $1,000 and $1,300.

Rosenblum noted that the average cost of monitoring is $3,000 to $5,000 per factory visit, plus one or two follow-up visits. He said that Notre Dame appears to be receiving a discounted rate for universities, perhaps because there is a "publicity value" of working on such a site. Esbenshade said it is cheaper to have someone on site than to use an auditor such as PricewaterhouseCoopers.

Schilling said the total cost of having an on-going project in Central America, and obtaining critical on-site information, was about $15,000 and could serve several universities. He thought each Notre Dame project with PricewaterhouseCoopers was more in the range of $1,200 to $1,800 per audit. He argued that PricewaterhouseCoopers and other accounting firms and independent auditors saw the potential for business growth in "social auditing" and quickly developed this monitoring field. Schilling said that the difference between accounting firm auditors and NGOs is that auditors have no human rights or labor background—even if they do try to take local context into account and consult with NGOs in the process. They will always miss key issues. That is why it is necessary to hire people from the human rights community.

Tavis outlined why Notre Dame is moving to "joint auditing," which includes auditing companies and local contacts and human rights people:

  • Accountants are good at analyzing data and spotting holes in data—inconsistencies that require skill and cannot be done as well by others.
  • Procedures matter, and auditors provide something that Notre Dame wants and needs.
  • It is possible to force a dialogue between human rights people and auditors so that they can work together.
  • They want equal representation between NGOs and auditors; NGOs should have a full voice with respect to auditors.

Someone asked what Notre Dame thinks of the WRC. His answer was that the WRC is new, so while Notre Dame is not excluding anything (to get as many companies involved as possible) it is not yet ready to do anything with that organization. He said he is concerned about some of the monitoring practices of the FLA process, and that is why the university does some of it on its own.

Tavis added the university is using "joint auditing" because it found in El Salvador that auditors could not get worker input. There was very little trust, even with local NGOs. They concluded that because of this difficulty, they could not continue doing only on-site monitoring and that they needed to employ off-site interviewers.

One person asked why Notre Dame does not work with the WRC in conjunction with other universities rather than working alone. Tavis said Notre Dame does not currently have the same ideas as the WRC, and the contracts in Latin America are specific to Notre Dame. The same person asked whether there is a problem with an accounting firm doing accounting work for a university’s business side and monitoring labor conditions at sweatshops at the same time. Tavis said he doubted it since the accounting firm had to protect its reputation. Several people strongly disagreed with that, including Tom Wheatley who called it a major conflict of interest. Wheatly said NGOs find that problem all the time.

Judy Gerhard of the Council on Economic Priorities (CEP) then discussed the SA 8000 process, its code of basic needs, and the need for quantitative indicators. The organization uses the World Bank and government data on poverty lines, and Ruth Rosenbaum’s book on how to compare relative wages. Among other things, they look at minimum or prevailing industry wages; they do surveillance every six months; they look for ways to accredit NGOs and trade union groups; they offer two levels of accreditation (of factories and of auditors), and they seek to follow International Standard Organization models, using established procedures. She also indicated that CEP confronts several problems, including questions about how to combine qualitative and quantitative data. They have no well-defined method for defining a living wage yet and they face the question of what to do if a trade union freely bargains for a wage that is less than a living wage.

Pilot Project

The group then discussed recommendations regarding monitoring a living wage. Schilling said the purpose of pilot projects is to implement something on a limited basis to learn more before implementing it systemwide. He recommended implementing something in a limited number of countries based on production and resources in that country.

Various members of the group then made recommendations of principles on which pilot projects should be based:

  • As with the University of California project, there should be education programs for workers and a mechanism for testing complaints.
  • There should be a consortium with other universities.
  • There should be an emphasis on building relationships.
  • There should be a focus on training NGOs and educating workers.
  • There should be autonomous NGO and labor union participation.
  • To assess the effectiveness of local labor ministries, monitoring of official worker complaints should be included in the pilot.
  • There should be a clear understanding of the variation in what workers are paid, what they can purchase with that money, and what they want.
  • There should be sensitivity to the race, class, and gender of monitors.
  • There should be a review of different forms of remuneration.
  • They should take cost of living into account, presence of company towns, purchasing power index, and other local contexts.
  • The procedures should be transparent.
  • They should build student capacity.
  • They should be accountable to students, faculty, and workers.
  • The role for auditors should be limited, if they participate at all.
  • There should be full disclosure of wages, benefits, hours, and possibly production or productivity measures.
  • They should build cross-border relationships.

Later it was suggested that monitoring should result in sweatshop-free type certifications, but the majority were opposed to this position. The group then responded to the points made above. Esbenshade noted it is extremely difficult to get lists of factories. Mike Gonzalez asked how students would get the lists of factories. He said that even with that important data, it is still not everything needed. They need to talk to workers. Wheatley said they need to get the public, industry-reported data and verify the company’s reports in order to establish an institutional credibility.

The discussion then turned to how to obtain the trust of NGOs and how they are accepted by workers. Rosenblum noted it took a year in Guatemala to get NGOs to trust each other, not to mention to earn the trust of workers. Gay Seidman noted that labor movements are suspicious because NGOs, largely made up of middle-class professionals from the outside, claim to speak for workers without being accountable to them. She said many workers are uncomfortable with outsiders choosing the NGOs for them in this process.

Rosenblum said that NGOs must be careful to stop short of representing workers, as opposed to advocating fair conditions for workers. Sue Villbrandt of the South Central Federation of Labor noted that there would be a need to maintain control over the pilot project through representation from someone here, perhaps students and faculty.

Others asked, if the group does not trust auditors, NGOs or unions, then who is left to oversee the monitoring? Rosenblum said the point is to become knowledgeable about local circumstances. He said there is a need to maintain an overall sense of caution since after all this is an intervention from outside. He said all efforts should be aimed at enabling workers to freely choose to represent themselves. Tavis agreed, noting that unions, when present, should always be consulted, especially regarding wages.

Molly McGrath asked who would do the pilot projects. Some answered the universities, while others suggested different models may be needed.

Later, on Sunday, Benjamin said several pilot project issues needed further discussion. These included geographic location of pilots, composition of the oversight committee, the universities involved, student and faculty involvement, and worker involvement. She said a forum should be held between the university and its licensees so that workers and companies could give their thoughts to the larger university community. She also said funds should be set aside for worker visits to bring them to campuses.

Discussion then moved to the location of pilot projects. Don Branson of the University of Connecticut said that most discussion had been to go only to places with strong unions and NGOs. He said the group should also go to places without them to document the barriers. Otherwise, he said, the group could be biasing its efforts if the only data collected comes from places with strong unions and NGOs. He said he understands why the group would want to go a place where success is more likely, but it would bias the sample.

Wheatley said the group was not excluding any place outright, but just expressing preferences. McGrath added that this would not be academic research, and hence there is no need for perfect random sampling. Benjamin suggested excluding China since it is too complicated and does not recognize unions.

Pranav said he agreed that they should only go to places with strong union and NGO links. Wheatley noted that Nike, Champion, Reebok, and Gear for Sports said they are disclosing their factories soon. Tavis said they should go to places where university products are being produced. Afsaneh Morodian suggested the group should be in touch with Global Exchange. Benjamin added that they should go to a place where licensees agree to stay where they are and not try to move jobs.

Pranav suggested they should include one place in the United States, such as Los Angeles, because of the impact it would have here. Others disagreed because there is a different set of consequences in the United States.

Jill Cartwright asked if this would be done on a multi-university scale. McGrath noted that the University of California pilot project is a good template even if its goals are not exactly the same (see Appendix F).

The group discussed having an oversight committee with allied organizations and agreed that academics, students, unions, and NGOs (both here and in local areas) should all have an advisory role. They then discussed who would run the project. Tavis suggested it be a committee chaired out of a university, especially since it is ongoing. The group decided there should be one committee that both advises and governs in the United States, but there should also be one in the country of the pilot project. They also agreed that any research teams should include local workers.

Discussion then moved to a timeline. Esbenshade explained the time for the pilot project for the University of California . Phase 1 was projected to take a year and included collecting data, selecting sites for study, creating a committee to oversee the project, and deciding which organizations to work with.

The group recommended a multi-phase timeline for the work, beginning January 1, 2000. Between January 1, 2000, and March 1, 2000, the consortium should be organized and funding sources identified. From March 1, 2000 to June 1, 2000, studies would be planned and pilot sites selected and planned. The studies and pilots would then be completed between June 2,000, and June 1, 2001.


Possible Future Action and Research

The final plenary session reviewed the results and recommendations for future actions by the workshops. Three general conclusions emerged: 1) creation of a multi-university consortium on the living wage and sweatshop issues; 2) through the consortium, planning and sponsoring on-site, targeted pilot projects in several countries; and 3) carrying out further research on the economic effects of a living wage. A timeline for carrying out these actions was also proposed.

Multi-university Consortium

As was discussed explicitly in the defining and measuring and monitoring workshops, there was general agreement that efforts should be undertaken to create a multi-university consortium to carry forward future actions and research on sweatshop issues. The immediate purposes would be to further understanding of consumption costs and wage levels in some logo apparel supplying factories and regions, to provide for and encourage ongoing research into the economic effects of living wages, and to explore the best mechanisms for monitoring supplier compliance with agreed codes of conduct.

The governance of such a consortium was also discussed, and while no formal agreement was reached, it was generally felt that in addition to university representatives and students, there should also be wider involvement of the United Students Against Sweatshops, unions, and NGOs active on anti-sweatshop issues.

Pilot Projects

It was agreed that once organized, the consortium should plan and sponsor pilot project research in several countries that make a considerable amount of logo apparel. The studies would focus on measuring consumption costs and wages and other working conditions specified in conduct codes. They would also consider which form of monitoring seems most appropriate. There was no agreement on which countries these should be. However, there was a general sentiment favoring regions that have a strong union presence. On the other hand, there was also some sentiment that a comparison of strong union and weak union environments would be useful. Several students and faculty described the research that would be carried out as "not traditional academic research," but "action research." That was never decided in any formal sense, however, and the differences were not clearly spelled out.

Future Research on Economic Effects

A second function of the consortium would be to plan and sponsor continuing research on economic effects of living wages. Three types of issues and studies were envisioned. The first would be to understand better the demand elasticity in the logo apparel industry, that is, the relationship of changes in price to demand for the products. It was felt that a good portion of this research could utilize existing data, literature, and comparisons with other products with the unique traits of logo apparel merchandise.

The second set of issues to be explored has to do with better understanding the cost structure of the industry, especially the labor costs that go into the products. Again, Pollin and his colleagues have used existing public-use data in the United States as a starting point. They found remarkable similarities when they later acquired industry-specific, private data.

The final area is the very important task of understanding "ripple effects" of higher wage standards—both positive and negative ripple effects. Further research is clearly needed on industry relocation effects. One way to do this, and it might be done in conjunction with pilot projects, is to compare two regions, one with higher wages induced by collective bargaining agreements, and one with weak unions and lower wages. If there is little difference in the pressures to relocate between the two regions, some idea of the wage effects can be obtained. These sets of wages could then be compared to prevailing wages in other regions. Another approach might be to interview plant managers and officials concerning how they make location decisions, and what factors, including wages, they take into account. The studies should also document positive effects of higher wages, such as increased purchasing power, infrastructure development, better health and education opportunities.

Possible Timelines

The timelines discussed independently in the defining and measuring and monitoring workshops were remarkably similar and were generally agreed as useful targets. An eighteen-month initial timeline was proposed. From January 1, 2000, to March 1, 2000, the consortium should be organized, and initial funding developed. From March 1 to June 1, the two types of research described above would be planned and contracted. The research would then be conducted from June 1, 2000, to June 30, 2001. There was some discussion as to whether the consortium could be set up that fast. The symposium ended with participants signing up to contact their university officials about the idea and about joining such a consortium.



Appendixes

 

A. Agreement Between Students and Chancellor

B. Program and List of Presenters

C. Symposium Attendees

D. Wages and the Purchasing Power Index (CREA)

E. Purchasing Power Index in Haiti (CREA)

F. Appelbaum/California Memo