Labour Practices and Productivity in Lao PDR Perspectives from Management and Workers

1. Labour Practices and Productivity in Lao PDRPerspectives from Management and Workers Richard Record, Trade Specialist East Asia and Pacific Region, World Bank Better Work Conference – October 26, 2011

2. Presentation outline • Survey rationale. • Survey methodology. • Manager perspectives: labour supply and productivity. • Worker perspectives: main concerns. • Implications for firms, industry, government and development partners. Lao Garments Sector Survey

3. Lao PDR • Low income / Least Developed Country, in transition… • …but rapidly integrating into the regional and global economy (member of AFTA, acceding to the WTO). • High growth, driven principally by natural resources export boom (copper and hydropower). • Challenge of diversification: landlocked high trade facilitation costs; small (6m) and low density population; risks of “Dutch disease”. Lao PDR: Gender and Trade

4. Lao garments sector • ~ 100 firms, of which about half are direct exporters and half subcontractors. • ~ US$ 200m in annual exports, mostly to the EU, modest growth. • ~ 27,000 workers. • Tiny by international standards, but the largest formal sector of manufacturing employment in Laos. • Representation of workers limited to formal mass organizations. Lao PDR: Gender and Trade

5. Research methodology • Three broad classifications of firms: • Large (>500) direct exporters, mostly foreign owned. • Medium sized direct exporters, mixture of foreign and domestic ownership. • Smaller subcontractors (<100), mostly CMT domestically owned. • Survey of management (~50 firms). • Worker focus group discussions across the categories, plus separate former worker group, and male worker group. Lao PDR: Gender and Trade

6. Worker profiles • Workers are mostly young women from rural areas seeking to earn income to secure a better life for themselves and their families. • Many would have liked to continue their education, but their families could not afford it – remarkable number of workers send remittances home so that siblings can gain a better education (and avoid factory work). • Factory work, although difficult and demanding is considered less arduous and offering better income opportunities than family farming. • Most see garments work as an interim strategy to build savings in order to start their own business or family. Lao Garments Sector Survey

7. Workers profiles…. • Workers have verylimited knowledge of factory work and living conditions prior to recruitment and very limited understanding of their contractual rights and obligations upon recruitment • Hours are long (8hrs/day, 6 days a week + overtime); workers complain about compulsory overtime, sometimes until early morning hours • Even in relatively “good” factories, workers complain of insufficient drinking water, poor air quality and heat, inadequate sanitation facilities, difficult living conditions, strict factory rules and difficult relations with supervisors. Lao Garments Sector Survey

8. Firm challenges: labour supply Lao Garments Sector Survey

9. Firm challenges: turnover • Attrition from large and medium firms at around 3.5 percent of their workforce every month, while small firms lose over 6 percent of theirs. • In contrast firms report that as many as half of their workforce has been with the factory for three years or more. • Sector is operating at levels below full capital utilization due to labour shortages. Lao PDR: Gender and Trade

10. Firm challenges: turnover… Lao Garments Sector Survey

11. Effects on labour productivity • Firms want to invest in improving labour productivity: new production technology and line management techniques and training for workforce. • Over 90 percent of firms were interested in offering more training and career development opportunities to workers (Priority training needs: production skills and basic literacy/numeracy). • ... but are afraid of losing return on investment because of high staff turnover. Lao Garments Sector Survey

12. Reasons workers leave (according to managers) Lao PDR: Gender and Trade

13. Reasons workers leave (according to workers) • Difficult transitions (esp. rural migrants) and insufficient information working conditions, contractual rights. • Workers resent pressure and conflicts with supervisors (some cultural clashes and lack of dispute resolution systems). • Wages (rates, perceived lack of consistency and transparency). • Hours (excessive overtime demands especially if poorly compensated). • Working conditions (water and sanitation, air quality, heat, etc). • Living conditions in dormitories (water and sanitation, crowding, meals, etc.). Lao Garments Sector Survey

14. Challenge/opportunity? Worker dissatisfaction > high turnover > loss of productivity • Workers cannot voice their interests effectively and when faced with problems have little alternative but to withdraw their labour – further exacerbating turnover problem. • Country struggling with access to premium buyers – “lack of information that labour is being managed appropriately”. • Study points to possibilities to increase worker wellbeing, reduce turnover and improve productivity. Lao PDR: Gender and Trade

15. Key findings • Transition from rural agricultural farming to industrial factory work extremely difficult, leading to many early ‘drop-outs’ and ‘churning’. • No effective system of worker representation or dispute resolution means that workers left with little alternative than to withdraw their labour. • Significant variation of labour standards across industry, but room for improvement on both ‘soft’ management and ‘harder’ conditions of employment (wages, benefits) and infrastructure. Lao PDR: Gender and Trade

16. Key recommendations • Transition support program, labour market information systems to support labourforce entry. • Better worker representation and dispute resolution mechanisms. • Factories improvement program, plus monitoring/certification systems to provide incentives for firms. • Better Factories Lao pilot? Lao PDR: Gender and Trade

17. Questions? Richard Record Trade Specialist (EASPR) World Bank Office Vientiane rrecord@worldbank.org www.worldbank.org/lao/trade Lao Garments Sector Survey