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Garments Wages: what is best for Fiji? Fiji Sun, 10 October 1989.

29/03/2012

Four years ago, there was great public concern expressed over the extremely low wages being paid in the garments industry (see a previous article by me “What’s the Plight of the Garments Workers”, Fiji Sun, 10 November 1985).

What has happened to wages since then and what should Government policy be now?

By using a sample survey of the wages of  four large and better paying exporting firms, I show that at best, real wages have declined even further, with large proportions of workers still earning below the real minimum wages established momentarily in 1985.

There is every evidence that the employers are in an even better position to pay much higher wages.   However, it seems that unless Government takes positive action, the situation will not improve if wages are left to “free market” forces.

1985 Backdown 

In 1982, it was decided to have minimum wages of $1.13 for all of manufacturing on the basis of Government studies. However, following pressure from the garments manufacturers, the minimum for them was reduced to 90c per hour (with 70 cents for beginners) and not ratified until November 1985 (with $1.13 being retained for manufacturing in general).
Despite the concession by Government the garment manufacturers closed the factories. Government then withdrew the mimimum wages legislation.   There has been no indication since then of minimum wages being established.

Export Expansion 

Since 1985, the industry has expanded almost five©fold, largely through preferential access to the New Zealand market and the extremely generous concessions given through the Tax Free Factories scheme in Fiji.

The financial advantages have even encouraged a few New Zealand firms to come to Fiji, while redundant New Zealand garment workers have complained of unfair competition from Fijian sweatshop conditions and low wages, less than a fifth of that in New Zealand.

They are pressuring the NZ Government to re-impose restrictions on garments exports from Fiji.

Wages Since 1985

  In 1984, average wages in the garments industry was 74 cents per hour. This had dropped to 72 cents by 1987.  In 1988 average wages of tax-free factories still hovered around 74 cents per hour. In early 1989, the average for my sample of four high-paying exporting firms was only 85 cents per hour.

Because our sample did not include small firms and casual workers (who are employed in large numbers and whose wages are much less than 70 cents per hour), the industry average in 1989 is probably much lower.

Therefore the nominal improvement in wages of around 13% is the maximum possible.  More importantly, in the 1985 to 1989 period, there has been inflation of around 26%.

This increase in cost of living has implied a decline in  real wages of at least 10%.

The actual decline is probably much more for the whole garments industry.

Distribution of wages 

Averages, however, do not give enough information about the distribution of low paid workers. We can see in percentage terms for 1989,  how most of the workers in our sample are bunched below 75 cents per hour.

Wage (cents/h) 55      70        75        80        85        90        95        100            105      >105
Perc. (1989)    49%    10%     7%      7%      4%      3%        4%       3%     13%

  Govt. and Manufacturing Wages 

The 1989 average garments wage (85 cents/hr) can be compared with the 1985 average government workers wage ($1.76 per hour) and the 1985 average wage for all wage earners in general ($1.50 cents) per hour.

The figures also show that if my 1989 sample of garments workers were working for government in 1985, roughly 92% of them would have been in the bottom 2%.

The same 92% would have been in the bottom 28% for all 1985 wage earners in general.   Without doubt, garments wages continue to be the worst in Fiji, despite their relatively high skills.
What should minimum wages be now?

1985 Order Baseline

From November 1985 to February 1989, there has been inflation of about 26% while the Clothing (and Footwear) Prices (and roughly the employers’ revenues) have gone up by even more at 33%.

If minimum wages had kept pace with the cost of living, beginners’ minimum should have been 87 cents per hour while the general minimum should have been $1.12 per hour.
From our sample study in early 1989, we find that at least 74% of the workers were earning less than 87 cents per hour, while at least 88% were earning less than $1.12 cents per hour.

The real situation, for the whole industry, is probably worse.

Worse still, our sample indicates that at least 38% of workers are still receiving less than the 1985 beginners’ minimum of 70 cents per hour. and at least 74% are earning less than the 90 cents per hour which was set in 1985 as the general minimum for garments workers.

Can Employers Pay More?

We know that clothing prices in Fiji have generally kept pace with inflation. However, wages of garments workers have not, indicating that garments employers’ profit margins have probably been increasing since 1985. Their margins are higher for exports.

Manufacturing Comparison

In Fiji, garment manufacturing is still far more profitable than manufacturing in general. Census of Industries data for 1985 shows that per dollar of capital assets, garment workers on average received only a third of manufacturing wages, but produced more than twice the value.

Not surprisingly, over the period 1982 to 1985, surplus (or profit) on capital assets for garment employers was more than three times that for manufacturing in general.
Manufacturing            Clothing

Value Added per $ of Capital Stock                          51 cents             110 cents

Wages per Capita                                            4,464                1,620

Surplus per $ Capital Stock (1982©85)         17 cents                 54 cents

 

Comparison With NZ

 

Profits are much higher because of exports to New Zealand under the Tax Free scheme.
We know that for the clothing industry ”in New Zealand•, the wages and salaries share of gross output is roughly 30%.

If we assume Fiji wages to be a fifth of New Zealand wages and other costs to be roughly the same, then the Wages cost of Fiji exports to New Zealand could be as low as 6%.
However, if we allow for differences in capital intensity and productivity, and extra costs of moving material to and from New Zealand, then the actual range will probably be between 6% and 15% of gross output.

This implies, therefore, that in addition to already high normal profits and the savings in taxes in the Tax Free Zones, ”extra profits of around 15% of gross sales  have now become available to the garments exporters from Fiji.
Quite clearly, increases in garments wages of up to 100% are possible without cutting into employers’ normal profits and tax savings.

If we assume that the extra profits were shared between workers and employers, wage increases of the order of 50% seems viable.

Workers’ Low Share

Another indication of higher profit margins in Fiji, may be obtained from the Wages share of Value Added.

In New Zealand in 1984, the proportion of wages was as high as 73%. In Fiji even before the export boom  to New Zealand took place, the wages share of value added averaged only 50% over 1984 – 85.

For garments exporters to NZ, the share of wages is even less than 50% now.

Again, the difference with the 73% in NZ, indicates that there is much room for increasing garments wages in Fiji.

The Uncertain Future

I have argued previously that it is in the Fiji exporters’ interest to raise garments wages since this would weaken NZ workers’ arguments for introducing restrictions against Fiji exports.

Currently, NZ is reluctant to impose such restrictions, not only because they are supposedly attempting deregulation, but are also aware of their huge surplus in trade with Fiji.
However, this situation might not continue: if enough garments jobs (currently about 20,000) are lost in New Zealand and if jobs become a critical issue in NZ elections, then restrictions might be re-imposed whatever the effect on Fiji.

Alternatively, the NZ market could be completely opened up in which case Fiji exports would be shut out by much cheaper products from elsewhere (eg SE Asia), produced under economies of scale.

As in Australia, New Zealand retailers will find more profits to be made from cheaper Asian garments than from Fiji products. The Fiji industry might well stagnate, or at worst, collapse.

Export of Profits

Most businessmen in Fiji, especially after the coups, will quite rationally, be keeping or sending the bulk of their profits abroad openly or through transfer pricing (by under-reporting their export sales or over-reporting their import costs.

Virtually the only benefit which is going to remain in Fiji in the long run, apart from tailoring skills, will be the wages component of the gross output in the garments industry.

Everything else is either imported or will be exported.

Additionally, wages spent in Fiji are likely to have much greater multiplier effects than the import oriented high incomes of garment employers.

It is therefore important that to maximise the benefits to Fiji, Government should try to ensure that wages in the garments industry (and the economy in general) are kept as high as possible, ”provided the employer has the ongoing ability to pay•. This is certainly the case in the garments industry where fortunes are currently being made.

Free Markets and Wages Policy?

The employees are poor, non-unionised, mostly women: they will accept any wage in order to feed, clothe and educate their children. There is no real freedom for them to withdraw their supply of labour in the “free market”.

Garments employers are organised into a powerful “union”, with tremendous influence over Government, as we have seen in the past.

They are wealthy enough to withdraw their “demand” for labour in what for them, is not a free but a controlled market.

Top civil servants who help formulate government wages policies, now also have interests in the garment industry.

It is certain that leaving garments wages to the “free market” will not result in economic justice for the garment employees, nor  result in maximum benefits for Fiji.

In the long term interest of the garment workers and the Fiji economy, Government should instigate a full independent inquiry into the ”audited• accounts of the garments employers.

They should then establish minimum wages for garments workers, on the criterion of an ”ongoing and viable  ability to pay, with reasonable returns to investors.

 

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