The International Labor Organization (ILO) is urging global brands to help absorb the costs Cambodia’s garment factories will have to bear owing to a $28 jump in the monthly minimum wage for garment workers that takes effect this month.
The hefty wage hike, from $100 to $128, was announced by the Labor Ministry in November and makes for a more than doubling of the minimum wage since 2012, when it stood at $61.
Though the new wage falls well short of what some of the country’s more strident unions were demanding, employers say dozens of the more than 500 garment factories in the country may be forced to close down, a move that would put tens of thousands out of work. In response, some of the brands buying from Cambodia have promised to pay more for their orders to help the factories cope. But some of the biggest brands have not.
In a statement released Monday, the ILO urges all brands to join in.
It says the latest raise will push the average monthly wage in the garment industry, including overtime and bonuses, from $183 to $217, and increase factory costs by nearly 20 percent, all while the prices the factory’s buyers are paying stagnate or even drop.
“Caught between these two factors, factories have seen a substantial fall in their operating margins over the past three years,” the ILO’s senior regional wage specialist, Malte Luebker, said in the statement.
Mr. Luebker said the factories can cover some of the costs of the new wage themselves by becoming more efficient, but added that those changes would offset only a fraction of their new expenses.
“It is important that all sides work together to ensure Cambodia’s garment industry remains economically viable,” Maurizio Bussi, the ILO’s country director for Cambodia, Laos and Thailand, said in the statement. “We call on the global brands to play their part.”
Assuming the factories increase their productivity by 4 percent this year, the ILO estimates the brands would have to raise the prices they pay for their orders by up to 3 percent to cover the new minimum wage, or about $0.02 for a T-shirt that now costs $0.80 cents to make.
“This small increase could generate additional revenue of $160 million to support the new wage level,” the ILO says.
Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia, which represents the country’s export factories, welcomed the statement, but said it would make little difference unless the buyers start to face the same price increases in the countries Cambodia is competing with, such as Bangladesh and Vietnam.
“It’s a good gesture…but the ILO has zero leverage over the buyers,” he said.
Mr. Loo said it was inevitable that some factories would close because of the raise if nothing changes.
“Surely more than 10 percent,” he said. “As we’ve been saying all along…the higher the wage is set, the more factories will have to close. And during the negotiations, we said we could afford $110.”
While the factories stuck to the $110 figure during the negotiations, Mr. Loo said away from the talks that they could afford as much as $130 before putting Cambodia’s wages on par with those in Vietnam, the country’s main competitor.
The unions accuse the factories of exaggerating the threat of mass closures and point out that similar warnings in the past failed to materialize.