The Challenges of Achieving a Living Wage in Fashion Supply Chains: The Case of H&M

Author: Professor Shelley Marshall, RMIT University

While most would agree a living wage should be a given, not a grandiose aspiration, few workers who make our fashion receive enough to account for a living wage. H&M, one of the titans of fast fashion, pledged in 2013 to ensure that by 2018, the workers in its sprawling supply chain would receive a fair living wage. This commitment was supposed to affect around 850,000 fashion workers. But the reality of achieving this noble goal proved to be far more complex and riddled with challenges.

H&M’s announcement was deservedly met with widespread acclaim in an industry notorious for its exploitative labour practices. Yet, implementing a living wage across H&M’s vast and varied supply chain was akin to navigating a minefield.  Today, instead of making big claims about achieving a living wage, the company instead says,

‘Making sure garment workers are paid fairly is a big challenge. As one of the biggest fashion companies in the world, we have an important role in empowering workers and improving livelihoods to contribute to the socio-economic development of countries where we produce’.

What was so hard about achieving a living wage, and why is H&M now making such tempered claims? This blog chronicles the challenges for lead firms in addressing living wages in supply chains.

What is a living wage?

First, let’s get clear on what is meant by a living wage. While many companies aim to comply with the laws of the countries in which they operate, countless countries set legal minimums lower than a living wage. For example, the minimum monthly wage in Bangladesh, a major garment producer, is BDT12,500 (USD113); below the World Bank extreme poverty line of USD2.15 per person per day. This means that legal compliance is not enough.

A living wage is an income level that allows an individual or family to afford a basic but decent standard of living, covering essential expenses such as housing, food, healthcare, education, transportation, and other necessities. It should also provide a buffer for unexpected costs, ensuring financial stability without the need for multiple jobs or reliance on public assistance. A living wage considers the local cost of living, ensuring that workers can participate fully in society, maintain their health and well-being, and achieve economic security. It is what we all want to live full, decent lives, free from poverty and insecurity, in short.

Complexity of Supply Chains

As Australian companies who report under the 2018 Modern Slavery Act quickly discovered, goods and services for large organisations are procured from a myriad of sources.  In a recent survey of large Australian businesses that I conducted with a team of colleagues, respondents reported having between 4000 to tens of thousands of direct suppliers. Those suppliers then source from a multitude of more suppliers. Most companies have learned that they don’t have a comprehensive list of their direct suppliers, let alone knowledge of their second and third-tier suppliers where working conditions are likely worse. A beginning point for most businesses, then, is to have a clear sense of their suppliers, before engaging with the issue of conditions of work.

Local Economic Conditions

Once companies have established who their suppliers are, they must next deal with the challenge of multiple jurisdictions, with suppliers hailing from countries and regions with unique economic conditions, labour laws, wage standards and costs of living. Coordinating a unified living wage policy across such a heterogeneous network is inherently complex, requiring a large commitment of resources.

H&M found that the economic landscape in countries from which it sourced products varied widely. In many regions, local minimum wages are far below what would be considered a living wage. Bridging this gap is not straightforward.

Let’s talk numbers. In Cambodia, workers at H&M suppliers had an average monthly take-home pay of $187.97. According to a 2018 Clean Clothes Campaign report, some workers in H&M’s supply chain received between a meagre 10% and 50% of a living wage, often toiling up to 80 hours a week. The Ethical Trading Initiative (ETI) review painted a similarly grim picture. Some workers could not even access their basic human rights, let alone receive legal overtime rates. This reality starkly contrasted with H&M’s promises.

Once a baseline for a living wage is established, inflation and fluctuating costs of living can make it challenging to maintain a consistent living wage standard. Most of us can relate to this, with rising costs of living. What qualifies as a living wage can change rapidly, requiring adjustments and recalibrations.

Factory capacity to administer wage systems

One of the glaring issues brought to the fore by H&M’s efforts was the inadequacy of wage systems in many factories. These systems were ill-equipped to establish and manage a fair wage structure that could reward productivity and different skill levels. H&M’s strategy focused on enabling fair pay systems and improving wage management structures, but it stopped short of directly setting wage levels.

Big structural issues with the apparel industry stand in the way of living wages. The report “Do We Buy It?” reveals more about the ground reality. Workers at H&M suppliers in Cambodia reported issues with short-term contracts that limited their rights to holiday and bonuses. In some factories, piece rate systems had been put in place, causing workers to skip breaks and leaving them exhausted and prone to regular illness.

Many businesses that are working towards more just working conditions in their supply chains are grappling with similar deficiencies in human resource systems and supplier capacity. They are making suppliers sign contracts that include supplier codes of conduct that suppliers simply do not have the capacity to adhere to. This suggests two options: either only source from suppliers that can deliver on expectations, or work closely with them to lift their capacity.

Influence, Enforcement and Monitoring

And then there is the question of influence. Unlike direct employees, H&M found that it had less control over its suppliers’ wage policies than it had initially assumed. Influencing wage policies necessitates significant collaboration and buy-in from suppliers, who often face their own financial constraints and operational challenges.

Once there is buy-in, ensuring that suppliers adhere to living wage commitments is another major hurdle. Effective monitoring, auditing, and verification systems are essential but challenging to implement. A survey I conducted with a team of colleagues found that one of the biggest hurdles to addressing human rights in supply chains is inaccurate reporting from suppliers. A majority (72%) of respondents indicated their major suppliers collect labour information, however only 48% of respondents indicated that when a labour incident occurs, suppliers report it to their company. Suppliers have an incentive to obscure the actual compensation received by workers. These numbers affect their bottom line.

What next?

The challenges H&M faced in achieving a living wage in its supply chains highlight systemic issues within the global fashion industry. Despite initial promises and efforts, the complexity of implementing a living wage across diverse networks of suppliers has proven formidable, with obstacles such as intricate supply chains, varied economic conditions, and inadequate wage systems in factories. Yet, the importance of this goal remains undiminished. The H&M case study shows that achieving a living wage is nearly impossible for one firm to achieve alone unless it pays more and radically alters its procurement practices, or brings production in-house. It is otherwise about fundamentally altering global supply chains to prioritise human dignity and fair compensation. As my next blog on this topic discusses, this requires concerted coordination across the global apparel industry.