On Monday, 16 unions and the Garment Manufacturers Association of Cambodia will sit down to thrash out demands by textile workers that their $45 monthly minimum wage be increased.
The stakes are high. The unions have proposed an increase in the minimum wage to $82 and are threatening to hold general strikes if their demands are not fulfilled. Garment factory owners have said any raise, coming at a time of increased competitiveness internationally, could drive them out of business and out of the country.
Both sides in the debate could not be farther apart, and some fear that the talks on Monday will descend into a row.
The strongest argument supporting the unions’ demand for a pay rise is that Cambodia has simply become a more expensive place to live.
“Compared with 2000 to now, we can see a sharp increase in the consumer price index of about 20 percent,” said Chan Vuthy, a researcher at the Economic Institute of Cambodia.
For this reason, there could be justification for a 20 to 30 percent raise in the minimum wages, he said.
Cambodian Development Resource Institute research adviser Keith Carpenter said a regular CDRI survey of vulnerable workers indicates that real wages of garment workers have been falling for three years.
The survey shows that real wages declined 3.1 percent from 2003 to 2004, a further 8.7 percent from 2004 to 2005 and another .3 percent for the 12 months up to February 2006.
“It shows that real incomes have been declining over the last three years. That would explain why there is this agitation over wages,” Carpenter said.
Kang Chandararot, director of the Cambodia Institute of Development Study, also said that inflation has risen but that raising the minimum wage may just not be feasible.
“While the workers base their requests on increases in the costs of living, the management base their requests on the threats to competitiveness,” he said.
“The inflation rate has constantly risen, but to set up the minimum wage is not just the issue of the cost of living but it is the ability of the factory to pay,” he said.
Cambodia is in a difficult situation because competitor nations with garment sectors have both higher productivity per worker and lower wages than even Cambodia’s current minimum wage.
With a minimum wage in Bangladesh of around $20, and with the average worker making $40 total per month, how can Cambodia expect to compete with Bangladesh if workers demand $82 per month, he added. Furthermore, the revenue generated from garments is shrinking worldwide. The prices of garments have fallen internationally around 2 percent since the end of the Multi-fiber Agreement quota system in January 2005, Kang Chandararot added.
A soon-to-be-released EIC survey of garment factories shows a sharp decline in profits indicating that the industry is in serious trouble, Chan Vuthy added.
The average garment factory is making only 6 to 7 percent this year in profit, slightly better than putting the initial capital in a bank account and earning interest, according to the data.
While Carpenter said more research is necessary to understand the minimum wage issue, from observation it is clear that the industry is under pressure.
“People tell me the industry is largely run by foreigners who have no commitment to Cambodia and they could easily pick up and move somewhere else. It is certainly easy to take sewing machines, load them into a container and take them somewhere else.”
A solution may lie in linking productivity to wage increases, said Sok Sina, a research associate at CDRI. But linking productivity to wages could be a very complicated process. According to EIC data, productivity per Cambodian garment factory worker has already increased. From the 2000 level, it has increased 20 percent to 30 percent, Chan Vuthy said, further justification for a modest wage increase.
Coalition of Cambodian Apparel Workers Democratic Union President Ath Thon said Cambodian workers are productive and are improving. He did not say, however, whether the unions would agree to the linkage of productivity and wages. Ath Thon also said that estimates that the industry would implode if an $82 wage were adopted were unfounded.
“People always make the prediction that factories would move to other countries, but in fact the factories remained in the same countries,” he said.
Cambodian Union Federation President Chuon Mom Thol also said he did not believe that Cambodia’s competitors are in a better position already and that a wage increase could be risky to the entire industry.
Rong Chhun, the president of the Cambodian Federation of Unions, which includes his teachers’ union and the garment workers Free Trade Union, said union surveys back the $82 demand and that this figure was “just enough to survive.”
Raising the minimum wage is a social and political issue as well as one of pure economics, and the 16 unions will have to come away from any negotiation with GMAC feeling they have been given a fair hearing. Not raising the wage could also have other consequences.
“The current situation would present social unrest, such as strikes or negative working environment in the factories…which means lowering the productivity in the factory,” Kang Chandararot said.
Roger Tan, the second deputy chairman of GMAC, painted a dire assessment if the talks break down.
With neighboring Vietnam set to join the World Trade Organization this year, and gain the same quota-free rights Cambodia now enjoys, this is not the time for a minimum wage increase, he warned.
“With Vietnam joining the WTO and their being so much closer to the raw material base China, we are already dreading the threat without having to consider any wage increase,” he wrote.
“If the worker unions are to ask for ridiculous increases without considering the competition, then they will do it at their own peril.”