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Tuesday 6 January 2015

ILO urges garment buyers to help absorb new minimum wage

Give our kids a better deal 
PHNOM PENH (The Cambodia Herald) – The International Labour Organization (ILO) called on companies sourcing garments in  Cambodia to help the local industry absorb a new minimum wage of $128 a month which went into effect on January 1.

In a statement, the ILO said its estimates showed that average wages including bonuses and overtime were likely to rise from $183 to $217 a month.

"The pay rise is expected to increase factories’ wage bills by approximately 18.7 per cent," the statement said, noting that this was on top of earlier increases that more than doubled the minimum wage since 2012 when it was $61 a month. 

At the same time, the ILO said that prices Cambodian factories receive in their main markets had been stagnating or declining. For example, the US Bureau of Labor Statistics had calculated that prices for apparel imports from ASEAN countries had fallen by 4.5 percent since June 2012. 

“Caught between these two forces, factories have seen a substantial fall in their operating margins over the past three years,” said Malte Luebker, the ILO’s senior regional wage Specialist. 

“In principle, factories can respond by increasing efficiency, using measures that range from better work organization to energy conservation,” Luebker said.

“However, our research shows that these gains are gradual and will only enable factories to cover a small share of the expected wage increase.” 

Maurizio Bussi, the ILO country director for Thailand, Cambodia and Laos, stressed the importance of all sides working together to “ensure Cambodia’s garment industry remains economically viable.”

“We call on the global brands to play their part.  We have received encouraging signals that key buyers will honour the pledge they gave the Cambodian Government in September, and will reflect the new minimum wage in higher FOB prices for 2015,” he said. FOB stands for free on board, or export prices excluding shipping charges.

The statement said labour productivity in the garment sector could grow by roughly 4 per cent in 2015, its trend growth rate since 2000. 

According to the ILO, this would enable factories to raise wages by $7 to $190 without further eroding their margins. 

The statement said the expected increase in average wages to $217 a month was much higher than what companies could generate through efficiency gains. 

Assuming other costs remain the same, global brands would need to increase the prices they pay to Cambodian factories by 2.4 to 3.0 per cent to cover the shortfall, it said. This would add about 2 cents to the price of a T-shirt that now costs 80 cents to make, and that might retail for as much as $10. 

With annual garment and footwear exports worth $6 billion, the ILO said such an increment could generate additional revenue of $160 million to support the new wage levels.

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