Luxury brands can afford to use high-priced labour in their home countries. Less exalted labels (and, indeed, some of the cheaper “diffusion” lines of the top brands) cannot. At the top end of the market the commercial arithmetic allows a certain amount of leeway: designers like Proenza Schouler set a price for Barneys which is double the cost of their labour and materials; Barneys then sells to the shopper at about 2.6 times the price it paid to Proenza Schouler. Because the shopper is willing to pay up to $2,000 for her dress, everyone is happy.
Go downmarket from Barneys, however, to the Gap and Macy's in America, or to Top Shop in Britain, or Printemps in France, and what counts most for the shopper is often price. Hence the competition by retailers and manufacturers to find the cheapest supplier, which means the cheapest workers.
Just how cheap would doubtless shock most of the buyers of the end-product. A sewing-machine operator in Bangladesh, for example, is entitled by law to a minimum monthly salary of $18.53, which would buy half-a-dozen caffè lattes at a Los Angeles Starbucks. In Honduras a worker in an export industry is entitled to $139 a month. In China's Guangdong province the minimum monthly wage is $63.75, supposedly bolstered by subsidized board and lodging for the thousands of young women who flock to Guangdong's factories from China's poorer regions.
Levi Strauss, USA. When you compare those levels with the American minimum wage of $893 a month for a 40-hour week, it is not surprising that so many American companies have moved their production abroad. After 150 years in business the Levi Strauss company, for example, no longer makes its jeans in America: unable to afford workers earning $12 an hour, it closed its last American plant in January. Yet as recently as the 1980s Levi's had more than 60 factories in the United States.
France. Those cost pressures are not confined to American companies. A recent study by France's CEPII, an economic think-tank, calculated that the labour cost of making a shirt in France for the French market would be just over half of the total cost (see chart above). If the shirt were made in Portugal, the share would be just under half. But if the shirt were made in China, labour would account for only 28% of the total. Even with customs levies and transport, the shirt from China would therefore cost little more than half the shirt made in France.
[Vogeler's comment: Lower costs of producing items abroad allows for lower consumer prices but also for higher profits for companies. Increased profits drive off-shore out-sourcing. Do you really think that the price of shirts dropped as much for consumers as the cost of production? In addition, lower prices for stuff are only useful if you have a job at all. Indeed, as wages fall or remain the same, adjusted for inflation, cheaper goods only prevents you from falling even farther behind!]
Source: The Economist, 6 March 2004.