Beyond Trafficking and Slavery

A proposal for transnational supply chain labour regulation

Supply chains without international cooperation will never work, but an international average minimum wage backed up by enforcement mechanisms and the correct incentives could help produce a just global economy.

Shelley Marshall
24 June 2016
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Siân for London/Flickr. (CC 2.0 by-nc-nd)

The need for a new approach to transnational labour regulation

Inequality is now at an all-time high and, relatedly, there is a large global workforce who toil in conditions unregulated by labour laws and without a living wage. Conventional labour laws fail to protect these workers because they do not have recognisable employers or because they are poorly enforced. Often, supply chain dynamics mean that holding the direct employer responsible for the conditions of the worker is meaningless, because a powerful player higher in the supply chain makes it impossible for the direct employer to provide a living wage or lawful conditions.

It is time to address these dynamics with new regulatory measures, and the International Labour Organisation (ILO) had a unique opportunity to do so at the 2016 International Labour Conference (ILC) on Supply Chains. Here, I propose a novel approach that the ILO could adopt as it moves forward. Because of the nature of global supply chain dynamics, anything less than international coordination between countries to reduce inequality and to promote a living wage will fail the millions or poor workers who survive on too little.

Promoting an international living wage

At the heart of the informality problem lies the question of how to induce developing and developed countries alike to raise minimum wages and enforce labour laws. This dilemma is particularly stark for poor countries whose main competitive advantage is perceived to be the cost of their labour. These countries lack the incentive to raise wages, and other nations lack the ability to force them to do so. They fear that if labour costs increase, work will move to other countries where wages are lower. It is difficult for individual countries to act alone to increase minimum wages.

One way that this strong disincentive can be overcome is to put in place regulatory strategies to increase minimum wages across regions and internationally. A key ultimate objective would be an ILO convention or UN treaty for signatory nations to increase statutory living and minimum wages. This could occur in three stages:

At the heart of the informality problem lies the question of how to induce developing and developed countries alike to raise minimum wages and enforce labour laws.

The first step would be for all countries to provide a living wage. Here, the ILO’s recent work calculating a living wage based on food and service baskets is particularly important for setting minima.

The second step would be to move countries towards a global average minimum wage, based on purchasing power parity (PPP). PPP is employed as a measure to compare income levels across different countries. In other words, the average minimum would be adjusted so it was appropriate for each countries’ cost of living. If a country had a below average minimum wage, it would be required by the instrument to increase wages on average by an agreed quantum – say 2% per annum in real terms – until it became above average (after which its obligation would fall to 1% average annual increases).

Finally, once a nation’s minimum wage had reached 60% of the median income for that nation, its only obligation under the instrument would be to maintain that target.1

Enforcement: the international living wage dispute mechanism

The ‘international living wage’ convention or treaty would give rise to an international enforcement/dispute mechanism. This mechanism would allow unions and other interested parties to bring claims, at an international level, against states on behalf of worker-citizens for failing to enforce living wage laws, and be awarded a portion of any of the funds recovered. The primary remedy would be the recovery of unpaid remuneration. The state would be ordered to pay unpaid entitlements to those workers who had not been paid the living wage. Higher penalties might be exacted against states where evidence was presented of corruption, such as the taking of bribes by labour inspectors.

The potential of being awarded a portion of funds recovered through the international living wage dispute mechanism would provide an incentive for trade unions to dig out whistle-blowers against states who fail to enforce living wages. The award of a portion of the amount recovered could provide a major source of funding to unions, underwriting expanded transnational activities. This would boost recruitment of new union members, particularly from sweatshops and home-based workers who are vastly underrepresented by most trade unions.

An example of the process is illustrated below.

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Figure 1: Example process in the international living wage dispute mechanisms and national supply chain tribunal

National supply chain tribunals

Each country that has ratified the international living wage instrument will be under an obligation to set up a tribunal with powers to (a) adjudicate disputes that arise as a consequence of breaches of workers’ rights within supply chains, and (b) create positive duties for parties within the supply chains. The tribunal would be charged with adjudicating disputes in failures to pay a living wage against employers, contractors, buyers, agents, financiers and so on.

Where claims have been made against the state, the national supply chain tribunal would have jurisdiction to hear disputes regarding recovery of such funds from parties in the supply chain.

Based on the evidence presented to it, and its own inquiries, it will determine the share to be paid by different parties in the supply chain. If responsibility for non-payment is found to be shared between different parties, for example, by the direct employer/principal and also the buyers or brands, amounts will be apportioned between the parties.

Positive duties – national supply chain tribunals could also impose positive duties, which could include ways of reducing or removing remuneration-related incentives, pressures, and practices that contribute to payment of remuneration that is less than a living wage, breaches of labour laws, and unsafe work practices. It might order the negotiation of a ‘supply chain collective agreement’ which binds international buyers, local employers, and unions in an arrangement that ensures that living wages are paid.

Extraterritorial powers – the tribunal would have the power to make orders against parties in the supply chain domiciled outside of the country in which the work was occurring, as long as sufficient evidence was present concerning the manner in which the practices of the entity impact working practices and conditions, and the complaint concerned one or more workers within the jurisdiction of the tribunal.

Workers not employees – the powers of the tribunal would not be limited to employees, allowing a wider range of workers to bring claims than under most labour law systems which base labour protections on the employment contract. The provisions will explicitly refer to workers and empower the tribunal to make orders in relation to living and minimum wages in accordance with the international living wage instrument.

Incentives for compliance activities

By giving state labour inspectorates the right to recover unpaid remuneration and entitlements from employers and other parties in the supply chain, the tribunal could create an incentive for state labour inspectorates to be more active in inspecting, collecting evidence, and prosecuting both employers and non-employer principals. Where claims have been made against the state in the international living wage dispute mechanism, the incentive will be particularly strong, as the state will desire to recover funds already paid to workers. It is hoped that this will assist in overcoming the barriers against action by state inspectorates.

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Figure 2: Virtuous circles of enforcement and international orchestration

By granting employers and principals the right to contend that the practices of other parties in the supply chain have affected their ability to provide a living wage, legal remuneration, or related conditions to the worker, an incentive is created for employers and contractors to effectively ‘join’ other parties to the claim and provide evidence regarding the practices of these parties. Other parties in the supply chain, including buyers, financiers, agents, and so on will then be in the position of defending their practices, and providing contrary evidence.

Working together, the living wage convention or treaty, the living wage dispute mechanism and the national supply chain tribunals could provide a virtuous cycle of enforcement and international orchestration to boost the conditions of the world’s working poor. This, I contest, would be a positive step forward for decent work in global supply chains.

  1. The targets proposed here are merely suggestions. The exact figures would be a question for further empirical research, public debate and negotiation. For instance, the over time, the target of setting the minimum wage at 60% of the medium income may shift in order to further reduce inequality in advanced economies. ↩︎
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