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Those of you who follow the mainstream media will have seen some not-so-positive-news in the press in recent weeks regarding working conditions in some countries. A series of stories – triggered by the release of reports from some labour rights groups – have run in the newspapers alleging that the sporting goods industry uses “sweatshops” and pays “poverty wages”. adidas, as the Official Sportswear Partner of the London 2012 Olympic and Paralympic Games, features prominently.

These are not new claims. And the fact that the allegations have surfaced in the run up to the Olympic Games isn’t new either. It reflects the normal advocacy cycle, where the international trade unions and labour rights group do their very best to draw the world’s attention to working conditions in the developing world. The profile and visibility of the Olympics serves as the vehicle to achieve this. The international non-governmental organisations are therefore doing their part, publicly, to improve workers lives.

But have you ever asked yourself what lies behind a statement or sound bite that claims, for example, that a factory worker earns “as little as 34 pence an hour”. What does it mean? To the western reader it seems unjust, unfair and undeserving. Why are people working for so little? Surely this is exploitation?

The complexity of wage-setting

adidas has spent a lot of time looking into the question of fair wages, launching research back in 2001/2002 in Indonesia, developing guidelines and training programmes and, more recently, piloting a Fair Wage Assessment tool to help factories improve the process of wage-setting. And we can say with complete candour that pay remains a complex and not-so-easy-to-address topic for our contract factories; especially where the overall cost of doing business has been steadily climbing, due to fuel and commodity price increases, and consumers have been equally sensitive – in these times of austerity – to higher prices.

Quote 1 Fair Wages

By far the biggest influence on wages in any developing country is the size of its labour pool and the action taken by government in setting the statutory minimum wage. Many developing countries actually have a very small “formal” sector offering full-time work, for example in manufacturing or the service industry, with the larger part of the job market being in the informal sector, with no protection, permanence and very low or subsistence wages. The informal sector includes the street vendor, the small mum-and-pop businesses and a huge pool of underemployed day labourers. In a country such as Bangladesh, with a population of 160 million and an annual GDP (gross domestic product) which is 33 times smaller than Germany, approximately 80% of the workforce is employed in the informal sector.

For the relatively low-skilled mass production industries that generate high employment, such as footwear or apparel manufacturing, it is the government-mandated minimum wage which set the floor for pay. The base wage for factory workers closely parallels the minimum wage, to which are added overtime premiums, allowances and other discretionary payments, such as bonuses. Therefore, to a large extent, worker’s wages are determined by their local job market, the skill levels of the workers, the overall level of economic development in the country where they live and the actions taken by government in fixing minimum wages. Brands, and their buying practices, are not a significant driver.

So what does this tell us about a headline where workers are “earning as little as 34 pence an hour”? Could a worker be paid so little? Theoretically, yes, if a worker were deprived of any opportunity for overtime, allowances or bonuses s/he could receive such a meagre sum in one of the lowest wage cost countries.

Determining the relative value of currencies

It is little misleading, however, to convert workers’ wages into another ‘hard’ currency. This does not lend itself to a proper comparison. Pay has to be considered in terms of what it buys locally. So if you earn a dollar in India and a dollar in the USA what you can buy for that dollar is very different, given the differences in the costs of living in each country. To get around this economists usually compare pay in terms of Purchasing Power Parity, or PPP, against a common basket of goods.

Purchasing Power Parity

Whereas adidas has only 0.005 per cent of our global supply chain in Bangladesh, which is a very low wage cost country, we source a lot more of our goods from other parts of Asia. Although the data is a couple of years old, I thought I would share with you the International Labour Organisation’s summary of the Purchasing Power Parity of minimum wages in selected countries in Asia. These are countries where 80 per cent of our global production takes place. The figures for PPP given in the graphic above are US dollars per month.

This is a truer picture of base wages.

With overtime pay, performance bonuses and other allowances, a worker’s “take home” wage, as paid by our suppliers, is often double this number.

If you have any questions or remarks on this topic please don’t hesitate to comment.

If you are interested in more information on which rules we apply at our own sites and our suppliers’ factories  click here and learn more about our Workplace Standards.