Of Diamonds and Wages

A few weeks ago, a group of some 500 diamond workers from India's diamond polishing center Surat demanded a 30% increase to their wages. The event, which got some attention in the national press of the sub-continent, offered few details about their grievances. During a brief visit in Mumbai earlier this week I asked a number of manufacturers about the demand and was surprised by their answers.

Usually, when laborers demand a wage hike, employers in that sector tend to respond to it reluctantly, often claiming that wage hikes will destroy competitiveness, prevent future investments in the sector, or even bring it down to its knees. I heard none of this from the people I spoke with. The general sentiment was that a hike made sense.

One manufacturer, known for the especially rewarding wage structure at his Surat plant, went as far as saying the polishing plant workers deserve "a 100% increase," adding a moral aspect to it. "We are willing to pay so much for rough, add high premiums. But it is the people that really allow us to work. Why pay miners and not our workers." He felt that the real obligation should be to people first.

Many at Surat's diamond polishing plants earn about Rs. 8,500 a month, or about $190. The typical salary may include a minimum pay, with addition pay based on productivity. Those polishing bigger stones get paid more and expert workers are easily paid triple the base salary.

In bigger and pricier diamonds, the cost of labor represents a smaller component of the total cost of the diamond. In very expensive diamonds, the cost is almost negligible. But in very small diamonds, the cost of labor is a large component and therefore sensitive to wage changes.

To maintain margins, manufacturers would like to see the wholesale price of low-cost diamonds go up. As we all know, this is happening these days, but not as fast as the cost of rough. This comes at a time when some are wondering about the economic viability of near-gem quality rough. These goods are very low cost.

Another issue may be at play. If you take a broad, long-term view, the global manufacturing center is always moving. From Amsterdam to Antwerp, to Tel Aviv and now Surat. Indian manufacturers may fear they won't be polishing 90% of the world's diamonds forever and that China, Thailand or Vietnam will be next to host the global manufacturing center.

The shift from one center to the next was often driven by the cost of labor. Those still maintaining polishing plants in Israel are doing so for reasons of national pride, a desire to avoid sending home long time workers, as well as the ability to do some 'correction' works, but mainly they polished large diamonds. India does not want to be is such a state.

In late 2008, manufacturers sent home almost half of their workforce, losing a lot of know-how in the process. When economic conditions improved, many found that former workers had new jobs in Surat's other main sector – textile – and did not want to return to an industry they felt betrayed them at a tough time.

Today, Surat manufacturers are employing about 800,000 people, and want to employ some 150,000 to 200,000 more. Many of them get unusual benefits, such as free education for their children and free or heavily subsidized health care services for their family, nothing to dismiss in a country that does not have a western-style national pension system.

A couple of years ago, Surat was the city with the highest average salary in the country. The city is a source of pride to the country and its economic success is to a large part thanks to the diamond industry.

Manufacturers are therefore in a need to find the balance between maintaining their margin and competitiveness, while at the same time supporting one of the foundations of their business – their workers.