Explaining variation in apparel workers’ wages and working conditions, both between producer countries and over time, is a key objective of the Creating and Capturing Value project. In this post, we present findings from a comparative analysis of export apparel in Cambodia, Vietnam and Madagascar. These insights feed into a broader conceptual argument about how and why labor regimes change in labor-intensive industries in the global South. This blog post focuses on our empirical findings, but stay tuned, as the conceptual argument will be provided in a later post.
Apparel export production in Madagascar, Cambodia and Vietnam
Madagascar, Cambodia and Vietnam all integrated into apparel GVCs around the same time and under similar socioeconomic conditions. In all three countries, export-oriented apparel production emerged in the 1990s, as foreign firms established assembly factories to benefit from lower labor costs and preferential market access to the US and the EU. At the time, the countries had similar socioeconomic conditions, being largely agrarian economies with low productivity, high underemployment, and an overwhelmingly young – and quickly expanding – work force. Later, however, they diverged, as the apparel export industries in Cambodia and Vietnam expanded to become the world’s third and seventh largest, while Madagascar’s counterpart stagnated due to political turmoil. A comparative analysis offers several insights; but three are particularly relevant to our thinking on how and why labor regimes change.
Workers’ bargaining power is conditioned by structural transformation
First, the three cases illustrate how workers’ bargaining power is conditioned by what development economists call structural transformation. Structural transformation consists in a set of processes that include absorption of unemployment and underemployed labor into the formal economy through improved access to alternative livelihoods, as agricultural productivity increases and the industrial sector grows and diversifies, as well as declining fertility rates that change the size and composition of the labor force. Despite their similar starting points, Cambodia, Vietnam and Madagascar subsequently experienced different trajectories of structural transformation, with implications for the ability of workers to challenge prevailing labor regimes.
In the Southeast Asian cases, the apparel export industries expanded in the context of, and contributed to, rapid economic structural transformation. Both Cambodia and Vietnam saw a significant shift of labour from agriculture to industry, rising agricultural productivity, a steep reduction in unpaid family labour, and declining fertility rates, leading to a contraction in the pool of young workers typically taking jobs in apparel factories. As a result, labor markets began tightening, pushing up rural and urban incomes. As wages in export apparel, at the same time, were kept low to maintain competitiveness, apparel factories became less attractive to alternative livelihoods and started facing labor shortages. In Madagascar, by contrast, structural transformation was negligible: employment in agriculture and industry remained virtually unchanged over three decades, agricultural conditions deteriorated due to an increase in natural disasters such as droughts and cyclones; and with high population growth and insufficient job creation, informality and underemployment deepened (see graphs below). In Madagascar, therefore, labor markets did not tighten, and apparel export factories could continue to pull in workers by offering superior conditions.
Figure 1: Indicators on structural transformation
These diverging trajectories of structural transformation are key to explaining the intensity and impact of apparel workers’ collective action across the cases. In Cambodia and Vietnam, looming labor shortages boosted apparel workers’ bargaining power and incentivized large-scale labor protests that secured material gains. In Cambodia, following a decade’s erosion of the minimum wage in the export apparel industry, an outburst of strikes (2012-14) resulted in the government implementing a series of minimum wage hikes, a new wage fixing mechanism and other benefits such as employer-paid health insurance and higher maternity pay. In Vietnam, similarly, a major strike wave (2006-2012) – with apparel workers in a lead role – forced the government to increase the minimum wage annually, breaking a long-term decline in workers’ purchasing power.
The unprecedented impact of these strikes was not just rooted in tightening labor markets, but also in shifts in workers’ power towards the state. In Cambodia, the rapid expansion of the apparel workforce made it such a decisive voter bloc that when the political opposition campaigned for higher wages for apparel workers ahead of the 2013 election, it resulted in a near-defeat of the ruling party. Subsequent material concessions to apparel workers can be viewed as an attempt by the incumbent regime to win the support of apparel workers. In Vietnam, where industrial development was more diversified, apparel workers represented a relatively smaller segment – but their leverage was amplified by their ideological centrality to the communist party and the inexperience of the state in dealing with capital-labor conflict. To maintain legitimacy and prevent labor protests from morphing into a political movement, the state resolutely intervened in strikes and frequently raised minimum wages.
In the Southeast Asian cases, hence, structural transformation improved the ability of apparel workers to bargain concessions from their employers and the state, bringing them closer to living wage benchmarks. In Madagascar, by contrast, where surplus labor persisted, structural transformation was limited, and the industrial working class remained marginal, collective action by apparel export workers was more muted and ineffective.
In apparel assembly, the scope of economic upgrading is limited…
A second finding from the comparative analysis is that when workers mobilize and successfully secure material concessions, rising labor costs put pressure on the profitability of apparel export manufacturers – but due to the specifics of apparel assembly and the adverse distributional dynamics of apparel GVCs, the scope of accommodating higher wages through economic upgrading is limited.
In Cambodia, some apparel manufacturers sought to compensate the profit squeeze by introducing labor-saving technologies or move into more complex products with higher unit prices. But they had limited success, as many functions in apparel assembly cannot be automated, and complex products tend to have smaller orders and lower efficiency rates, cancelling out the higher unit prices. Also, the gains from these measures were often captured buyers in the form of lower prices.
Similar responses are evident in Vietnam, although the balance was different. Here, wage increases were more gradual, which gave firms more time to make investments and develop new business strategies; and many factories largely avoided the wage-driven profit squeeze by increasing labor productivity. Especially in key industrial hubs, where labor shortages became endemic, apparel factories invested in labor-saving machines and moved to products with higher unit prices, typically by adding high-end brands of existing buyers. Another strategy was to relocate factories to semi-urban or rural areas with lower wages. Nevertheless, many apparel factories still found it difficult to restore profit margins in the face of rising labor costs.
… so material gains to workers tend to be contradictory and fragile
With global apparel buyers unwilling to factor wage increases into their prices, and suppliers facing obstacles to economic upgrading, the burden of adjusting to rising labor costs largely falls on workers themselves. A third finding, therefore, is that material concessions achieved through apparel workers’ collective action tend to be contradictory and fragile, as factories and governments take regressive steps to realign labor regimes with the competitive reality of the industry.
This is particularly clear in Cambodia, where wage hikes after the 2012-14 strikes went hand in hand with rising work intensity, escalating production targets and tightening discipline. In parallel, the ruling party initiated a crackdown on the most vocal trade unions, while seeking to win over apparel workers through populist concessions. This repressive turn resulted in a decline in strikes and disputes, which helped to bring labor costs under control. Subsequent minimum wage increases were more modest and failed to keep up with rising living costs.
Although apparel producers in Vietnam generally fared better, work intensification also occurred, especially in factories that remained in the low-value segments. Alongside upping minimum wages, the government attempted to bring wildcat strikes under control through improved social dialogue at the workplace level; but at the same time, it tightened its grip over civil society, intensifying efforts to suppress forms of association and expression deemed threatening to political stability. In Vietnam, too, did this result in a decline in strike activity and a slowdown of wage gains.
What are the conclusions and policy implications of all this?
This analysis carries lessons for studying labor regimes in other cases. First, in the context of the high capital mobility of apparel assembly, which generally undercuts workers’ bargaining power, processes of structural transformation can increase workers’ capacity to extract concessions from employers and governments. Second, in the context of the asymmetric buyer-supplier relations in apparel GVCs and constraints on economic upgrading in apparel assembly, it is difficult for supplier firms to accommodate rising labor costs. Third, therefore, material gains to workers are often unsustainable, as factories and governments resort to work intensification and labor repression to restore profitability.
Hence, the analysis shows how a broad-based improvement in wages and working conditions of workers in the global apparel industry requires that the power asymmetries of GVCs are addressed. Collective action by apparel workers can only achieve lasting gains if it happens across producer countries, forcing brands and retailers to pay higher prices to factories—something that we have not yet seen. At the same time, the analysis illustrates how countries that integrate into the assembly stages of apparel GVCs must from the outset pursue industrial policies to develop other industries that have greater potential for technological change and, thus, higher wages.
This blog post is based on the chapter by Kristoffer Marslev and Lindsay Whitfield in the Decent Work in Global Supply Chains Annual Report 2024, which was published earlier this week. The chapter can be downloaded here.
Kristoffer Marslev is a Researcher at the Technical University of Denmark. His PhD examined the role of workers’ struggles in shaping the economic and social trajectories of apparel export industries in Southeast Asia, in the context of the power asymmetries and distributional dynamics of apparel GVCs.
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