California’s New Wage Legislation Disrupts Retail’s Made-In-USA Dream

The State of California plans to launch a garment wage experiment that could easily hamper retail’s quest for Made-in-USA apparel. Seemingly well-intentioned California legislators are potentially over-reaching in their efforts to achieve a degree of social justice and wage equality in their local garment assembly industry.

California has crafted legislation that targets the elimination of “wage theft” in their state’s garment sector. Their localized apparel economy is the largest garment sub-section in America, and perhaps the last bastion of centralized domestic apparel manufacturing. The “theft” terminology refers to payments in factories that are below the minimum wage, when not adequately connected to worker productivity. While the concept of the bill is worthy, the law itself likely needs additional review. Right now, it is sitting on Governor Newsom’s desk awaiting his potential signature by October 10.

Clearly, the state’s legislative body wanted to eliminate the appearance of sweatshops in California, but they need to be careful with the language of the bill, not aspiring to kill off a domestic garment assembly industry that is already hanging on by a thread (pardon the pun). The problem is that some of the legislative language potentially goes too far, putting many of California’s 46,000 entry level garment jobs at risk. Remember, California is a state that already carries a 7.5% unemployment rate (which is the second highest unemployment rate in America).

The SB62 bill is called the “Garment Workers Protection Act” and earlier this month it passed both the State Assembly and the Senate. The legislation is highly politicized, and everyone needs to decide (before Governor Newsom signs the bill) if this solves a problem or creates a new one.

When reading the legislation, the first item that hits a garment manufacturer is the elimination of the piece rate system (which measures worker productivity). The legislative idea is to replace the piece rate with California’s minimum wage of $13 or $14 per hour. Those who live the dream of garment manufacturing – will tell you that success or failure in an apparel sewing facility is highly contingent on the number of units made per operator per day. In an industry that has yet to be automated, worker productivity looms large, and proper usage of a piece rate system helps achieve that goal. In fact, California factory labor is already monitored by adherence to labor code 226 which requires record keeping of the piece rate. Any unscrupulous agents who might ignore these procedures will likely not change their ways because of the new legislation. The lingering question is – why punish the entire California garment industry for the misdeeds of the few?


Another aspect of the piece rate versus minimum wage discussion – is that the bill allows the use of piece rate if a factory is covered by a collective bargaining agreement. Not wanting to comment whether that is good or bad, the legislation does seems to contain a concept that factories would have to be unionized to remain productive, which by itself seems like a very odd arrangement.

Another important item is that a buyer giving an order to a factory (either directly or indirectly) creates a financial liability for that buyer in the event of wage violations by anyone (including an unassociated third party).

To be fair (and not political), the whole idea of responsible sourcing in the supply chain is taken quite seriously by all the major brands and retailers. Buyers have no intention of giving orders to companies that promote “wage theft.” However, (being political) there are people who are pushing California’s SB62 bill who have hinted that some of the major retailers are complicit in the “wage theft” and, quite frankly, that’s just not true.

In any industry, there will always be unscrupulous third parties that could sub-contract to an improper facility, and that can happen without a buyer ever knowing about it, and it can happen anywhere around the globe. The SB62 bill holds buyers financially responsible and, if it becomes law – buyers and brands will likely avoid (rather than support) California’s “Made in USA” efforts. Companies are just averse to being held liable for any situation they cannot control.

The truth is that everyone wants to manufacture more in the USA, but American apparel manufacturing is currently hovering around a 3% market share with 97% imported. Most of the domestic apparel manufacturing is being done in the Los Angeles area.

The problem with garment assembly is that labor is already an outsized cost component as companies try to stay competitive in the global marketplace. By transitioning to an hourly wage, the proposed California law creates a disincentive to the goal of being competitive. It should also be noted that garment factories can reach or exceed the minimum wage under a piece rate system.

The reality is that some legislative ideas sound great on the surface, but digging below and listening to experts in the field would certainly help the political understanding that there are better ways to achieve the same result.

And finally, an important reminder for the legislators in California comes from the former good citizens of the ancient city of Troy (in western Turkey). They once believed that they had fended off an assault from the Greek Army and thought they had won a battle. Following the skirmish, they received a victory gift from the Greeks and dragged a large wooden horse inside their gates for all to see. During the night, Greek soldiers (hidden inside the wooden horse) opened the gates to Troy and allowed the Greek Army to march in and, unfortunately, they proceeded to destroy the city. The Trojan Horse symbolized the supposed winning of a battle, when in the end they actually lost the war.

The Tycoon Herald