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Factory benefits to paying workers more: The critical role of compensation systems in apparel manufacturing

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  • Niklas Lollo
  • Dara O’Rourke

Abstract

While many stakeholders believe worker wages in global supply chains are too low, there is disagreement about what, if anything, can be done to raise wages. Through a two-year quasi-experiment in an operating apparel factory, we assess the effects on productivity and profits of raising worker wages with a re-designed compensation system. We show that, even within current factory margins and constraints, important wage gains (4.2–9.7%) are possible and profitable. Productivity increased 8–10%-points while turnover decreased markedly. Workers were motivated by the potential for increased wages from an accelerating group rate as well as increased engagement and sense of fair compensation. Workers focused their increased effort on reducing quality defects and tardiness, two behaviors which individual workers largely control. Additional productivity-increasing behaviors were constrained by skill, position, and conflicts arising from free riders. Advanced apparel manufacturing demands a more engaged workforce; this research provides early evidence that compensation systems can be a critical tool to meet multiple needs.

Suggested Citation

  • Niklas Lollo & Dara O’Rourke, 2020. "Factory benefits to paying workers more: The critical role of compensation systems in apparel manufacturing," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-24, February.
    • Handle: RePEc:plo:pone00:0227510
    DOI: 10.1371/journal.pone.0227510
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    References listed on IDEAS

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    1. Benjamin Selwyn, 2016. "Global value chains and human development: a class-relational framework," Third World Quarterly, Taylor & Francis Journals, vol. 37(10), pages 1768-1786, October.
    2. Sangheon LEE & Kristen SOBECK, 2012. "Low-wage work: A global perspective," International Labour Review, International Labour Organization, vol. 151(3), pages 141-155, September.
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    Cited by:

    1. Raymond Robertson & Drusilla Brown & Rajeev Dehejia, 2021. "Working conditions and factory survival: Evidence from better factories Cambodia," Review of Development Economics, Wiley Blackwell, vol. 25(1), pages 228-254, February.
    2. Sarosh Kuruvilla & Chunyun Li, 2021. "Freedom of Association and Collective Bargaining in Global Supply Chains: A Research Agenda," Journal of Supply Chain Management, Institute for Supply Management, vol. 57(2), pages 43-57, April.
    3. Chunyun Li & Sarosh Kuruvilla, 2023. "Corporate codes of conduct and labour turnover in global apparel supply chains," British Journal of Industrial Relations, London School of Economics, vol. 61(3), pages 481-505, September.
    4. Ana ANTOLIN & Laura BABBITT & Drusilla BROWN, 2021. "Why is the business case for social compliance in global value chains unpersuasive? Rethinking costs, prices and profits," International Labour Review, International Labour Organization, vol. 160(4), pages 571-590, December.

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