Sweatshops Improve the Lives of the Third World Poor

As hard as it may seem to rich Westerners, surfing the Internet, enjoying air conditioning and sipping on a latte, sweatshops in the Third World generally improve the lives of the poor in those countries.

I do not want to work in a third world "sweatshop." If you are reading this on a computer, chances are you don't either. Sweatshops have deplorable working conditions and extremely low pay—compared to the alternative employment available to me and probably you. That is why we choose not to work in sweatshops. All too often the fact that we have better alternatives leads first world activists to conclude that there must be better alternatives for third world workers too.

Economists across the political spectrum have pointed out that for many sweatshop workers the alternatives are much, much worse. In one famous 1993 case U.S. senator Tom Harkin proposed banning imports from countries that employed children in sweatshops. In response a factory in Bangladesh laid off 50,000 children. What was their next best alternative? According to the British charity Oxfam a large number of them became prostitutes.

The national media spotlight focused on sweatshops in 1996 after Charles Kernaghan, of the National Labor Committee, accused Kathy Lee Gifford of exploiting children in Honduran sweatshops. He flew a 15 year old worker, Wendy Diaz, to the United States to meet Kathy Lee. Kathy Lee exploded into tears and apologized on the air, promising to pay higher wages.

Should Kathy Lee have cried? Her Honduran workers earned 31 cents per hour. At 10 hours per day, which is not uncommon in a sweatshop, a worker would earn $3.10. Yet nearly a quarter of Hondurans earn less than $1 per day and nearly half earn less than $2 per day.

Wendy Diaz's message should have been, "Don't cry for me, Kathy Lee. Cry for the Hondurans not fortunate enough to work for you." Instead the U.S. media compared $3.10 per day to U.S. alternatives, not Honduran alternatives. But U.S. alternatives are irrelevant. No one is offering these workers green cards.

Economists have often pointed to anecdotal evidence that alternatives to sweatshops are much worse. But until David Skarbek and I published a study in the 2006 Journal of Labor Research, nobody had systematically quantified the alternatives. We searched U.S. popular news sources for claims of sweatshop exploitation in the third world and found 43 specific accusations of exploitation in 11 countries in Latin America and Asia. We found that sweatshop workers typically earn much more than the average in these countries.  Here are the facts:

We obtained apparel industry hourly wage data for 10 of the countries accused of using sweatshop labor. We compared the apparel industry wages to average living standards in the country where the factories were located. Figure 1 summarizes our findings.

Working in the apparel industry in any one of these countries results in earning more than the average income in that country. In half of the countries it results in earning more than three times the national average. …

The anti-sweatshop movement consists of unions, student groups, politicians, celebrities, and religious groups. Each group has its own favored "cures" for sweatshop conditions. These groups claim that their proposals would help third world workers.

Some of these proposals would prohibit people in the United States from importing any goods made in sweatshops. What determines whether the good is made in a sweatshop is whether it is made in any way that violates labor standards. Such standards typically include minimum ages for employment, minimum wages, standards of occupational safety and health, and hours of work.

Such standards do nothing to make workers more productive. The upper bound of their compensation is unchanged. Such mandates risk raising compensation above laborers' productivity and throwing them into worse alternatives by eliminating or reducing the U.S. demand for their products. Employers will meet health and safety mandates by either laying off workers or by improving health and safety while lowering wages against workers' wishes. In either case, the standards would make workers worse off. …

Contrary to [the] assertion, anti-sweatshop laws would make third world workers worse off by lowering the demand for their labor.


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