MNCs and Setting Cambodia's Minimum Wage

Textile workers of Cambodia unite to mixed consequences.

Economics textbooks will tell you that the cost of labor is determined when the downward-sloping demand curve for labor meets the upward-sloping supply curve of workers. Their intersection is called the "market-clearing" wage. Governments may introduce "distortions" however in the form of minimum wages when the market-clearing wage is deemed insufficient to meet the needs of the workers or are otherwise below what is normatively acceptable.

In Cambodia, however, the cost of labor may be determined more by external forces. Namely, pressure from multinational corporations that subcontract textile manufacturing to the country. At present, 80% of Cambodia's exports revenues supposedly come from garments. Hence, Cambodia is yet another country in our region that sees manufacturing garments as a stepping stone to development. Fair enough, but it seems the workers are discontent with the wages:

Textile workers in Cambodia have been demonstrating for weeks demanding a monthly minimum wage of around 115 euros. Violent clashes broke out during protests that took place last December and in January. According to human rights organizations, five protesters were shot dead by the police and many more were seriously injured. Twenty-three people were arrested. David Welsh of "Solidarity Center," a labor rights organization in Phnom Penh, is concerned about the recent developments. "This is a gross violation of trade union rights in the largest and most important economic sector of the country. This has nothing to do with the rule of law," said Welsh.

The crux of their complaint is that the government is failing to enforce the minimum wage suggested by a commission that it convened regarding the matter:

Last autumn, the Cambodian government set up a commission to stipulate a statutory minimum wage for the textile sector. The commission's report concluded that, depending on the location of the factory, the living wage should range between 111 and 127 euros. But the minimum wage for workers at the beginning of this year was set at only 73 euros. "The government has ignored the findings of its own commission. Because of this, the unions called for protests. Although political parties took the topic on board, the demonstrations were controlled solely by workers," said activist Welsh.

Even in Cambodia, the loudest labor activist is some white guy. It figures. More importantly, though, some other white guys--namely foreign firms subcontracting work--may be the ultimate arbiters of the wage level. Their fear, of course, is that foreign NGOs will fault them for running "sweatshops." Add the political violence into the mix and there is considerable reputation risk for these Western retailers:

“We can see frequent industrial conflicts coming here,” an H&M representative told the Cambodia Daily in February. “We need a sourcing country that is predictable [and] stable.” During the spring, Levi Strauss cut back on its orders to Cambodia because of the risk of more trouble and more disruption...


H&M, Levi, Gap (GPS), and other companies met with government officials in Phnom Penh this week to discuss their concerns about political unrest. Afterward, Levi spokeswoman Amber McCasland said the company supports the government’s efforts, which “should lead to the announcement of a new minimum wage as soon as possible.” On Friday the Cambodian high court convicted the workers and activists—and then gave them suspended sentences and freed them. “The verdict today is clearly connected to the political situation and pressure from the big brands,” said Am Sam Sath of the rights group Licadho.

Not for the first time, the wage levels of a labor-intensive manufacturing industry in a poor country will in no small part be set by the corporate social responsibility debates in rich countries.