The recent tragedies at several Bangladeshi garment factories have claimed over 1,000 lives—and focused international attention on this important industry. So far, much of the discussion has focused on Bangladesh’s minimum wage law–the average garment worker gets take-home pay of $70-$80 per month. But The Wall Street Journal (May 17, 2013) raises the question of how that minimum wage is being paid.
While the worker is sewing, on another floor of the same factory building negotiations are under way between the factory owner and a retailer’s rep. The factory owner is offering a shirt to the buyer at $6.75 per piece. Of that, the owner will spend $4.75 buying the 1.9 yards of 100% cotton with a fine 50s thread count, and another $1 buying the labels, accessories and other components the retailer specifies. The remaining $1 per shirt funds the “cutting and making,” which includes wages for the workers. Part of it funds the letters of credit the manufacturer will use to ensure a steady supply of raw materials. Part of it goes toward capital expenses–and part will become the manufacturer’s profit.
An order for 400,000 shirts typically means that 400 workers produce 3,077 pieces per day. The wage cost works out to about 38 cents per shirt. Another 15 cents goes to sending the shirt for a fine washing spin. Rent and utilities for the factory floor works out to about 11 cents per shirt, and head-office and marketing costs for the factory are 11 cents.
The remaining 25 cents may cover repaying a 10-year bank loan at 18% interest, which the factory owner has used for set-up costs. All is at a delicate equilibrium, writes the Journal, until the owner feels compelled to give in to a firmly worded request from the retailer for an additional discount, or a demand to air-freight some boxes of shirts that suffered a 2-week production delay.
Discussion questions:
1. If the cost of upgrading factory safety averages $128,000, where should the money come from?
2. How do students feel about paying more for clothes to help raise the living and safety standards in the country making the product?