The real reason Foxconn raised wages in Shenzhen

Once again people are making a big deal about Foxconn raising wages, linking the increase announced in Taipei on Friday evening to growing criticism in the international media of the company’s work practices.

The real reason that the electronics giant is raising wages again, I suspect however, is simply because the Shenzhen municipal government increased the statutory minimum wage on 1 February by about 13 percent to 1,500 yuan per month, forcing Foxconn to do likewise in order to maintain its current pay differentials.

The new basic wage for Foxconn production line workers in Shenzhen will be 1,800 yuan a month, still only 300 yuan above the new minimum wage, hardly a significant margin and certainly not enough for a decent living in one of the most expensive cities in China.

As has been the case for over a year now, that basic salary will increase after six months if the employee passes the company’s performance review but we are increasingly seeing that Foxconn is denying many workers the chance to even take that exam by employing them at one plant for six months and then transferring them to another factory. And as Foxconn expands its production throughout a growing number of production facilities in China, this practice is only likely to continue.

Moreover wage pressure in other cities where Foxconn has factories will eventually force the company to raise wages. In the eastern coastal city of Yantai, for example, it is increasingly common for ordinary workers to earn 2,500 yuan per month, and even as much as 3,500, according to some reports.

It is also important to note that, despite being squeezed into ever tighter profit margins by Apple and other major brands, Foxconn can still afford to pay its workers more than most. The company announced net profits of US$944 million in the first half of 2011, profits driven largely by the sheer volume of gadgets rolling off the production line every day in China. Other smaller and medium-sized manufacturers, under pressure from international buyers, local government tax departments and a lack of credit from the banks may not be able to make comparable increases, leaving workers even worse off.