Paying living wage in the electronic supply chain

Originally published at: https://www.fairphone.com/en/2020/12/18/living-wage/

For many of us, December is a time where we have to watch our wallets and budget carefully – especially this year, as COVID-19 wreaks havoc on the global economy. But for many more people, this is a year-round concern, regardless of the coronavirus.

Low wages are a persistent problem for workers in multiple sectors of the electronics industry. Many workers (and subsequently, their families) struggle to access food, education, healthcare, housing and other essentials, simply because they are not receiving a fair, living wage. A living wage is one that affords a basic but decent standard of living to the worker and their family.

Fairphone is the first electronics company that pays a living wage bonus to factory workers at our supplier Arima.

Fairphone pays factory workers a bonus of $1.85 USD per Fairphone 3 and 3+ produced. The unique system is part of Fairphone’s ongoing work to improve worker welfare in our supply chain and is paid on top of the regular salary to fill the gap between the Chinese minimum wage and a living wage.

We started this in September 2019. In just over a year, more than 485 workers, including those not on Fairphone production lines, have received a bonus up to EUR1,050. This equals more than 4 months of extra salary, or in other words, a salary increase of 30% if you earn the legal minimum wage. By paying living wages we also address one of the root causes of excessive overtime, another systemic industry problem.

We’ve been regularly checking in with workers at the factory to receive their feedback on the program, and have made some practical changes in July 2020:

:white_check_mark: We now pay out the bonus on monthly basis, rather than quarterly
:white_check_mark: The lowest-earning workers get a higher bonus
:white_check_mark: It’s no longer required to have worked 3 months or more at the factory to get the bonus
:white_check_mark: Making space for regular discussion and employee surveys was key for implementing these worker-recommended changes – as is understanding the wider cultural context.

The legal minimum wage is not a living wage

With the ongoing Covid-19 pandemic, research done in collaboration with Facilitator, a Chinese NGO, found that a living wage is more important than ever, as most workers experience a loss of income, mainly due to less overtime work and lower employer revenue. During the peak of the Covid crisis in China, Fairphone has also paid the living wage bonus to some factory workers in February and March 2020 who were unable to go to the factory due to government travel restrictions – helping to support them during a challenging time.

The ‘Facilitator’ research further found that the living wages in China are 2.5 to 3 times the legal minimum wage. The survey found that most workers first cut food expenses, followed by housing, medical and education expenses if their income is too low for a decent living standard. The research also confirmed a new trend. In the past, parents left their children in their home towns with their grandparents while they traveled thousands of kilometers to the factories for work. Now, more and more Chinese migrant workers move to cities along with their children and grandparents. This means that workers need an even higher income to afford the cost of living in a city with their families. To calculate the living wage for four key electronics production regions in China, Facilitator used the Anker methodology and complemented this with actual urban family size confirmed via worker surveys.

This research doesn’t just highlight the ways “business as usual” is failing workers: it provides us with valuable insight about opportunities to make our supply chain fairer.

We are proud that we have increased the living wage bonus at a time when many companies struggled to cut costs due to the global pandemic and will not be lowered when the pandemic is over. In just over a year, we have shown that it’s possible to enable living wages for factory workers in the supply chain and that costs less than 2 EURO per smartphone. The living wage program is an example of Fairphone creating a scalable model that can be easily replicated by the rest of the industry. And if they do, it could completely transform the electronics sector and the lives of the people that work in it. It’s time for electronics companies to start paying living wages in their supply chain.

To find out more about how we calculated and initially set up the living wage bonus, read our whitepaper here >>

9 Likes

These workers do an amazing job, and I’m honoured to carry the result of their skilled labour in my pocket every day. It’s fantastic (and only right) that FP are doing their best to make sure that their work benefits them, and not just the end user - and the fact that it takes this little money to do it ought to put the rest of the industry to shame.

A better world is possible. Kudos for these advances; here’s to them being the beginning of something far greater still!

8 Likes

I’ve stumbled over someone tweeting about how even Fairphone does not pay a living wage.

And in fact most of the time the blog post speaks of a “living wage bonus” and as a non-native speaker I’m not sure if that means “a bonus that gets everyone to a living wage” or “a bonus as a step towards a living wage”.

And looking at the numbers it’s mostly about averages and "up to"s. But if I’m not mistaken, 30% salary increase (if earning the minimum wage) would not be enough, because one of the images show that it’d need a 140% to 220% increase to get a living wage depending on the area.
But then, looking at the whitepaper PDF and the calculations there, they have a target wage of 5000 RMB and everyone below that gets a bonus. And the bonus is up to 3000 RMB. Adding that to the 2000 RMB legal minimum wage would yield the target wage. But was this achieved for everyone? And somehow I don’t get how those numbers from the whitepaper are consistent with that 30% salary increase mentioned in the blog.

Or is this the mixing of monthly salary and yearly bonus that makes it difficult to keep track?

I think much of the confusion usually stems from this: In their calculation, Fairphone first increase the wage of those workers who actually work on Fairphones to a living wage. In a second step, this bonus is then divided among the whole workforce of the factory (i.e. including those who do not work on Fairphones). As a consequence, every single employee gets a raise, but not a full living wage.

The alternative options would be to either concentrate the extra pay exclusively to those workers who actually work on Fairphones (downside: potential conflicts among the full workforce – some get paid better just because they are lucky enough to work in Fairphone shifts) or pay a living wage to every worker including those who do not work on Fairphones (downside: Fairphone most likely cannot afford this and would in fact subsidize the other companies whose products are manufactured at the same factory).

4 Likes

Right, good point. That adds to the complexity.

Would we now be at $2 USD per Fairphone 4 produced? :smiley:

Fairphone continues to roll out our Living Wage Program, which is one of the most important elements that defines our relationship with our strategic manufacturing suppliers. This means we make a reservation (2 USD) per Fairphone 4 sold for our Living Wage Program.

3 Likes

So $185,000 for 100,000 phones sold in a year between how many people?

That’s $500 a day amongst how many?

I understand everyone one in the factory gets the bonus not just those working on the Fairphone :slight_smile:

How big an increase to the wage does that equate per employee?

And do the labourers get the $s or do management take some?

Did you read the blog post (first post of this topic)?
It imho answers some of your questions.

2 Likes

Quoted from the initial post

This equals more than 4 months of extra salary, or in other words, a salary increase of 30% if you earn the legal minimum wage.

3 Likes