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Why does digital wages mean better social and labor conditions?


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To support the well-being of garment workers and help factories improve their conditions, the Sustainable Apparel Coalition and the Better Than Cash Alliance encourage more brands, suppliers, and factories to leverage the updated Higg Facility Social & Labor module to assess their performance and join the global movement shifting away from cash, keeping track of their performance to increase efficiency and transparency in their supply chains.

Published in: Economy & Finance
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Why does digital wages mean better social and labor conditions?

  1. 1. Why does digital wages in the garment sector mean better social and labor conditions? September2018
  2. 2. The Higg Index gathers information from 3,000 factories across 58 countries. brand & retailer supply chains across Facilities/ factories, representing The Higg Facility Social & Labor Module provided self-reported data collected in 2016 from: countries The Higg Index Facility Tools measure environmental and social sustainability impacts in manufacturing facilities around the world. The assessments provide each facility with a sustainability performance score.
  3. 3. What is the state of digital wages in garment factories globally?
  4. 4. High level results show two-thirds of facilities are using digital payments globally Wages Disbursed Digitally Wages Disbursed in Cash or Check The Responsible Digital Payments Guidelines, by the Better Than Cash Alliance, promotes the confidentiality and security of client data.
  5. 5. Digital payments in garment factories varies from country to country (1/2) Asia From the HIGG Index per country % of adults with access to an account (Findex 2017) 26 22 50 21 80 49 31 80 0 7 25 54 78 84 85 94 Myanmar Cambodia Bangladesh Pakistan China Indonesia Vietnam India % Digital payments in the apparel sector % Country level Financial Inclusion
  6. 6. Digital payments in garment factories varies from country to country (2/2) Europe 69 72 58 92 94 43 61 69 92 100 Turkey Bulgaria Romania Portugal Italy % Digital payments in the apparel sector % Country level Financial Inclusion From the HIGG Index per country % of adults with access to an account (Findex 2017)
  7. 7. Digital payments are common across different types of factories
  8. 8. Is there a connection between digital payments and improved social & labor conditions in the supply chain?
  9. 9. more likely to provide leading social & labor practices Facility offers a wage that is equitable with the cost of living Such as: Cost of living increases or bonuses when the company has a profitable year Statistically, if you pay your workers digitally you are…
  10. 10. Digital payments correlate with higher scores and therefore better social & labor practices Lowest score Average score when paying digitally Average score Average score when paying by cash or check Highest score Higg Index FSLM scoring scale Factories that paid workers digitally had a greater likelihood of scoring a higher total Higg FSLM score (average of 291 out of maximum of 605), indicating better social and labor working conditions overall—compared to factories that pay by cash or check (average score of 239).
  11. 11. Turkey China Indonesia Pakistan India The difference in average score between paying by cash/check and paying digitally At a country level, we see this correlation in the differences between average scores
  12. 12. Score in Higg Index attributed to each practice Definition of score # of statistically significant positive correlations* 0 Poor practice 3 1 Basic practice 119 2 Good practice 61 3 Leading practice 59 The majority of correlations were between digitized supply chains and beneficial practices Only three correlations out of 364 practices could be deemed as correlating negatively with paying workers digitally. *Tested using a z test (see Appendix)
  13. 13. What are the benefits of digital wages to garment workers and the industry?
  14. 14. The hidden costs of cash Untraceable Unsecured Inefficient Expensive “The factories have thousands of workers. It is quite expensive to carry and store this amount of cash.” “We understand the security risks for women in the country. Now add women carrying cash to that.” “Our suppliers spend 10 days a month processing worker payroll. And workers are distracted during this time as well.” “Another [challenge] was verifying if all the deductions—like “provident fund” —were made correctly.”
  15. 15. The benefits of using digital payments More information available in The Future of Supply Chains: Why Companies Are Digitizing Payments, The Better Than Cash Alliance, 2018
  16. 16. The example of Lucky in Bangladesh Lucky is one of the factory workers in Bangladesh benefiting from recently digitized salary payments through the HERfinance digital wages program, a collaboration of leading global brands – H&M, Marks & Spencer, Target, Li & Fung, Lindex, Debenhams, and Fast Retailing – managed by BSR (Business for Social Responsibility) as part of HERproject and developed in close partnership with the Bill & Melinda Gates Foundation. An interesting thing happened - After hearing that this factory was paying workers through mobile money, most of the vendors in Jamai Bazaar now have mobile money accounts. I don’t need cash even to buy clothes.” “When we received cash, there were many problems. I share my house, so I didn’t know where to keep my money safely. Being a woman, I also was worried about walking out of the factory with that much money. Lucky, Garment worker in the sewing section on participating in the HERfinance program ⒸBSR
  17. 17. Digital payments are essential for progressing financial Inclusion Data from the 2017 Global Findex, produced by the World Bank with funding from the Bill & Melinda Gates Foundation and in collaboration with Gallup, Inc. million adults have obtained access to an account since 2014 of adults globally now have an account at a bank or mobile money provider + million adults receive private sector wages in cash
  18. 18. Conclusion 67% of the factories in the garment sector pay workers digitally into an account In the garment sector, 7 out of 13 countries have higher digital payments than the country average access to bank or mobile money accounts There is a strong correlation between paying workers digitally and adopting leading social & labor practices in garment supply chains
  19. 19. What can companies do?
  20. 20. 1. Incentivize factories to pay workers digitally to support workers and help improve their social & labor practices 2. Measure wage payment methods across factory assessment, internally by companies or with industry tools, such as the Higg Index 3. Compare the data with your own suppliers 4. Learn from leading companies that have digitized payments with their suppliers What to do next ? More information available from case studies above
  21. 21. Anthesis Group is a global sustainability services and solutions provider, developing financially driven sustainability strategies, underpinned by technical expertise and delivered by innovative collaborative teams across the world. The BetterThan Cash Alliance is a United Nations-based partnership of governments, companies and international organizations that accelerates the transition from cash to digital payments to reduce poverty and drive inclusive growth. The Sustainable Apparel Coalition is the apparel, footwear and textile industry’s leading alliance for sustainable production. Information on partners
  22. 22. Appendix - Z test Anthesis ran a z test to further evaluate the relationship between digital and cash payments to garment workers.This was appropriate to use because the sample size was greater than 30 and it was assumed that the standard deviation was known. The formula used for the Z-test is: Where: •P1 = % of group N (not paying digitally) sayingY •P2 = % of groupY (paying digitally) sayingY •P = total proportion sayingY across the whole group •N1 = number not paying digitally •N2 = number paying digitally •Z – the resulting test statistic, which is a normal distribution. A confidence level of 95% was used to establish the significance of the results, the probability of the Z-test number being outside the expected range.