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Norske Skog pays 1.5% more than the minimum wage: High profits, low wages

Norske Skog's investment in the newsprint factory in Sing Buri in Thailand is frequently referred to as a financial success in the Norwegian press. But the financial crisis which enabled Norske Skog to make profit in Asia, has made it more difficult for the workers to survive on the minimum salary. Apart from a single wage increase, they have not benefited from Norske Skog's financial success. Instead of discussing the wage level with the employees, the Norwegian management suggests that it may reduce the workforce.
Artikkelen er mer enn to år gammel. Ting kan ha endret seg.
Norske Skog's investment in the newsprint factory in Sing Buri in Thailand is frequently referred to as a financial success in the Norwegian press. But the financial crisis which enabled Norske Skog to make profit in Asia, has made it more difficult for the workers to survive on the minimum salary. Apart from a single wage increase, they have not benefited from Norske Skog's financial success. Instead of discussing the wage level with the employees, the Norwegian management suggests that it may reduce the workforce.


By Øyvind Eggen
Norwatch

Norske Skog bought the newsprint factory in 1998, and the company owns about 30% through Pan-Asian Paper Company (PAPCO), which was established last winter. The Korean company Hansol controlled the factory until Norske Skog took over. The investments were cheap, because the factories were "on sale" after the financial crisis. They yield a large operating profit, as Norske Skog has repeatedly told the Norwegian media.

434 people work at the factory, which produces 24 hours a day. 28 Koreans are part of the management, a "heritage" from the former owners, in addition to two Norwegians. Thais from the local community work on the factory floor. Some of them have college education or other qualifications, but major parts of the production are based on low-skilled workers on minimum wage. This mainly applies to those who work with sorting the recycled paper which comes into the factory. Most of them are women.

The factory in Sing Buri pays a minimum wage of 132 baht (3,3 US$) per day. This is 2 baht more than what the law sets as the absolute minimum wage for the poorest areas of Thailand. The workers are only paid for workdays, thus they are not paid on their days off. According to the trade union, 80-100 workers, or about one quarter of the workforce, are on the minimum wage. They have not had any wage increase for two years. Last year, the workers received a bonus, which consisted of one month's salary plus a set amount of 7000 baht. This means that the lowest paid workers received almost three months' salary. This was a single payment, and at the time of NorWatch's visit to the factory, the workers had no agreement for a bonus for this year.

- In my opinion, we have had a "Scandinavian" low-income profile in this case, because the lowest paid workers got relatively more. The bonus implies that the real annual wage is 25% above the legal minimum salary, says managing director Erik Stai.

- Also, we must not forget the fact that one of the most important comparative advantages of Thailand is low wage costs, he adds.

Prices increase, wages remain unchanged
The legal minimum wage is, in most people's opinion, too low to provide for a family, especially after the financial crisis, which resulted in rising living expenses by at least 15%, while the minimum wage has not increased (see newsletter no. 10/99). In practice, it is low-paid workers who pay the highest price for the financial crisis in Thailand because the prices of many basic goods have increased dramatically. Women, who make up the major part of the low-paid workers, and who traditionally have caring work, will have a hard time if they do not have a husband who makes more money than they do themselves.

Even though Sing Buri is located in the low-salary area, it is quite close to the Bangkok area, which has the highest legal minimum wage (162 baht). Bangkok has a "contagious effect" when it comes to living expenses, and therefore the money is more quickly spent than in the districts, according to adviser Pradit Krunkrathok in the Labour Congress in Thailand (corresponds to the Norwegian Federation of Trade Unions, LO).

- With regard to the people with the lowest salaries, the difference between living expenses is not as big as the minimum wage regulations suggest, says Krunkrathok. In his opinion, employers should pay more than the minimum wages.

- 132 baht is maybe enough for a single person without his or her own apartment, but it is not possible to provide for a family with such a low salary, according to President Pratueng Saengsak in the Labour Congress.

- People who make this little money will have to work extra hours and save a lot in order to survive. They will build up debts, and they will never afford their own house no matter how much they save, he says. The president is a bit surprised that a Norwegian employer pays such low wages.

- Scandinavian employers usually pay decent wages, he says.

"There is no doubt that the factory can be operated with fewer employees. At our French factory, the production is five times as high, while the number of workers is the same."
Managing director Erik Stai.

Fears dismissals
- The salary is a result of negotiations, replies managing director Erik Stai to NorWatch's question.

This does not correspond very well with what the trade union representatives say. If wages have been mentioned at meetings, the trade unions have not interpreted this as a matter of negotiation. The club leader did not even mention wages when NorWatch asked him what they had discussed with the management.

- We asked the new management whether they had any plans to reduce the workforce, and they answered that they did not have any actual plans to do so. And we have received a good bonus, after three years with no bonus from the former owners. We are happy about this, says club leader Sutus Pusake.

He does not like to talk about wages, and after it is confirmed to him that NorWatch's newsletter will be read by the factory management, he seems quite reserved to make wage claims. In the Thai business culture, it is not common that the wages of unskilled workers is a matter of negotiation between management and trade union. This is explained by a history of trade union suppression and traditional norms of communication between people of different status. Strike is hardly ever used. The trade union with 380 members - almost all the workers - was founded in 1997, and it had big problems in the negotiations with the former Korean owners.

- We do not want to demand too much at a time. We want to be reasonable, and communicate clearly, he says about his strategies.

Content with Norske Skog
However, the workers seem content with the change of management. The former Korean owners did not show any willingness to negotiate with the workers. The trade union says that Norske Skog speaks directly to them.

- The former management was not very concerned about the workers, and they did not appreciate trade unions. The Norwegian owners are more open-minded. They face us directly, says secretary Sommai Saranjit.

- What are your expectations to the new, Norwegian owners?

- Maybe we will see some improvements of working conditions, and better security.

- Will you ask for higher wages?

-  Yes, of course, the secretary quickly replies, but this is corrected by the club leader, who reminds us that they do not want to be unreasonable. He admits that the trade union fears dismissals, and that this is part of the reason why they do not want to raise the issue of wages with the management.

Wage negotiations are not on Norske Skog's agenda either. Instead, the management talks about reductions, confirming that the employees' fear is not without reason. However, they refuse that they have plans to do so in the near future.

- In the longer term, we may consider reductions of the workforce, but it is not on our present agenda. There is no doubt that the factory can be operated with fewer employees. In our French factory, the production is five times as high, while the number of workers is the same, says Stai.

"The salary is a result of negotiations."
Managing director Erik Stai.

Several initiatives for the workers
Since Norske Skog bought the factory last year, the management has implemented several initiatives for the workers. For example, the 28 Koreans of the management, who represent the former owners, will be replaced by Thai personnel. The aim is to train as many of the present workers as possible to qualify them for higher positions.

- We expect to have replaced the Korean management with Thais in a couple of years, says managing director Erik Stai.

The low-skilled workers have been promised that they will be given priority when future advanced positions are to be filled, on the condition that they are qualified. A Human Resource Manager has been employed to recruit and train Thais. All employees at the lower end of the wage scale may receive scholarships and reasonable loans for their children's education.

The trade union recently got new premises; a large and well-equipped office with computers and meeting room facilities of the same standard as the management's offices. This happened after the Norwegian management took over.

The trade union has a rather modest aim; to ensure that the working conditions are in accordance with the law. They have achieved this, but not much more. Both wages, working hours, social arrangements and regulations of leave of absence are in line with, or slightly above, the minimum level of the law. The workers get six days vacation a year, three months paid maternity leave and up to 30 sick days - exactly what the law requires.

Wage increase would cost little
Other Norwegian business managers in Thailand have suggested to NorWatch that the wage should be about 25% above the legal minimum wage to enable the workers to live "fairly well" (see newsletter 10/99).

If the PAPCO management - as a first step - increased the minimum wage by only 10% for the 100 lowest-paid workers, it would cost the company less than 90,000 kroner (11.4 US$) a year. This equals 4-5 roundtrips between Oslo and Bangkok in business class. In the last quarter of last year, this wage increase would equal about 0.5 per thousand of the operating surplus of the two factories which the company controlled in Asia during this period. The company does not state the operating results of the Sing Buri factory alone, but says that both the Asian factories had quite a good surplus before financial costs.
 
Norske Skog in Thailand
The newsprint factory in Sing Buri is situated 140 kilometres north of Bangkok. The factory was built in 1994 and has modern equipment which can produce up to 120,000 tonnes of newspaper a year (about ¬ of what is produced at the company's factory in the Norwegian village Skogn). The factory is the only newsprint producer in Thailand, and it produces for the domestic market.

Norske Skog bought 75% of the shares in the factory in the summer of 1998, when the then owner was in serious financial trouble. After the company Pan-Asian Paper Company (PAPCO) was founded in February 1999, the factory was transferred to this company, which is owned by Norske Skog, the Canadian company Abitibi Consolidated, and Hansol Paper from Korea (33% of the shares each). Norske Skog still has the management of the factory. The World Bank (IFC) and some Asian banks have minority shares. PAPCO also owns paper factories in Korea and China.

The company does not state operating results for single factories, but it is clear that the production yields a good profit. Financial costs (interest etc.) must be subtracted from the surplus. Like most other foreign investors, the factory is given favourable tax conditions; six years with no enterprise tax since the foundation in 1994, plus five additional year with half the normal tax rate and reduced charges. 

The company is planning to rationalise expenses and increase profits in its "2000 Improvement programme", which is one among several initiatives which will result in reduction of the workforce (according to the annual report).

Norwatch Newsletter 12/99

- Annonse -