GAP publicly supported and will adopt higher minimum wages after President Obama addressed minimum wage increase to $10.10 in his State of the Union address last month (refer to Gyung’s February 20 blog post: Raising minimum wage would ease poverty but cost some jobs”). GAP will not have to raise prices says brand vice president, Lynn Albright. Higher wages that will reduce staff turnover is among ways that lower cost.
On the other hand, the restaurant industry, a low-wage employer, may not be able to avoid raising prices. Many chains in states with increased minimum wage have announced that they will be raising prices. Increase to $10 in 2016 from the current $9 in California will reduce operating margins; to combat, Jack in the Box, a burger chain will increase prices 1.4 percent in California, and 1 percent nationwide, in addition to any other increases necessary to compensate for any other changes like higher commodity prices. Cheesecake Factory estimates loses of $2 to 3 million and will raise prices 2 percent. Because of California’s already increased minimum wage, observed impacts serve as possible indication of the effects a minimum wage increase nationally could have. 
Meanwhile in Cambodia, garment workers have been striking for higher minimum wage. Last month’s police crackdown has left five dead. 700,000 workers, predominantly young women from the Cambodian countryside belong to the fast growing Cambodian $5 billion garment sector (Cambodia’s annual GDP is just $14 billion), stitching clothes and shoes. With the rise of wages in southern China ($295 in Shenzhen), companies have moved their factories further south to other Asian nations. Minimum wage is currently about $80 a month in Cambodia, but unions are seeking for an increase to $160, while the Ministry of Labor proposes $100. Wages have not kept up with Cambodia’s steep inflation since 2000. 131 strikes occurred last year.
A NGO working on urban poverty in Cambodia’s capital, Phnom Penh, says that factories would be able to afford higher wages if they did not have to dedicate so much to paying bribes to the corrupt government. Cambodia ranks 160th out of 177 countries on the 2013 Corruption Perceptions Index prepared by Transparency International. Since 2009, workplace conditions have deteriorated, greater numbers of factories failing health and safety standards, and employees not being paid on time.
However, the clothing companies that source from Cambodia are not terribly sympathetic. An H&M representative told Cambodia Daily “We can see frequent industrial conflicts coming here. For H&M to continue to develop in Cambodia … we need stability, we need healthy industrial relations, a functioning wage mechanism, and strong partnerships with all suppliers. We need a country that is predictable and stable.” While I understand the need for low prices, release of such a statement in the Cambodian newspaper sounds almost like a threat to me, nearly unjustified considering factories have moved from expensive China. GAP is among the companies that sources from Cambodia—somehow the attitude that wage increase for American employees can be optimistically offset by greater employee retention does not carry over to their Cambodian friends. 
Sources
http://www.businessweek.com/articles/2014-01-09/cambodians-risk-their-lives-for-160-a-month
One Comment
This is an interesting article. I personally believe that we need higher minimum wage. However, if you think about it as a business owner, then higher minimum wage leads to lower profit, which leads to higher prices for consumer goods. If the prices don’t go up in the U.S., then the businesses can look at other countries and build factories there for higher profit. As the post says, the wages for the workers in poor countries are really low. It is possible to say that if the U.S. workers get higher minimum wages, then the workers in poor countries may suffer from even lower minimum wages in their countries.
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