For this assignment, you are to read the two included articles on “sweatshops” (which I am putting in quotation marks because the term does involve some subjectivity in definition) and consider whether the U.S. should import products produced under sweatshop conditions. Do you believe that importing sweatshop merchandise benefits the producing nation and the workers in the sweatshop? Who do you think would benefit it the U.S. either imposed tariffs on goods produced in sweatshops or banned importation of these goods altogether? If you believe it is okay for the U.S. to import goods produced under sweatshop conditions, would there be any other conditions for production which might justify a ban on trade (e.g., endangered species, child labor, slave or prisoner labor)?You are to write 2 to 3 pages in response to this question. You are free to look at other source material, but make sure to reference other materials you use in your essay. You do not have to provide reference details the two assigned readings I have provided, but do so for other materials you use.in_defense_of_sweatshops.docxsweatshops_are_bad.docxIn Defense of “Sweatshops”
Benjamin Powell, Director of the Free Market Institute, Texas Tech University
“Because sweatshops are better than the available alternatives, any reforms aimed at improving the
lives of workers in sweatshops must not jeopardize the jobs that they already have.” 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.1 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.2
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
What are the Alternatives to Sweatshops?
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.3 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.4
Figure 1. Apparel Industry Wages as a Percent of Average National Income
Figure 1. Apparel Industry Wages as a Percent of Average
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.5
Next we investigated the specific sweatshop wages cited in U.S. news sources. We
averaged the sweatshop wages reported in each of the 11 countries and again
compared them to average living standards. Figure 2 summarizes our findings.
Figure 2. Average Protested Sweatshop Wages as a Percent
of Average National Income
Even in specific cases where a company was allegedly exploiting sweatshop labor
we found the jobs were usually better than average. In 9 of the 11 countries we
surveyed, the average reported sweatshop wage, based on a 70-hour work week,
equaled or exceeded average incomes. In Cambodia, Haiti, Nicaragua, and
Honduras, the average wage paid by a firm accused of being a sweatshop is more
than double the average income in that country. The Kathy Lee Gifford factory in
Honduras was not an outlier—it was the norm.
Because sweatshops are better than the available alternatives, any reforms aimed
at improving the lives of workers in sweatshops must not jeopardize the jobs that
they already have. To analyze a reform we must understand what determines
What Determines Wages and Compensation?
If a Nicaraguan sweatshop worker creates $2.50 per hour worth of revenue (net of
non-labor costs) for a firm then $2.50 per hour is the absolute most a firm would
be willing to pay the worker. If the firm paid him $2.51 per hour, the firm would
lose one cent per hour he worked. A profit maximizing firm, therefore, would lay
the worker off.
Of course a firm would want to pay this worker less than $2.50 per hour in order to
earn greater profits. Ideally the firm would like to pay the worker nothing and
capture the entire $2.50 of value he creates per hour as profit. Why doesn’t a firm
do that? The reason is that a firm must persuade the worker to accept the job. To
do that, the firm must offer him more than his next best available alternative.6
The amount a worker is paid is less than or equal to the amount he contributes to a
firm’s net revenue and more than or equal to the value of the worker’s next best
alternative. In any particular situation the actual compensation falls somewhere
between those two bounds.
Wages are low in the third world because worker productivity is low (upper bound)
and workers’ alternatives are lousy (lower bound). To get sustained improvements
in overall compensation, policies must raise worker productivity and/or increase
alternatives available to workers. Policies that try to raise compensation but fail to
move these two bounds risk raising compensation above a worker’s upper bound
resulting in his losing his job and moving to a less-desirable alternative.
What about non-monetary compensation? Sweatshops often have long hours, few
bathroom breaks, and poor health and safety conditions. How are these
Compensation can be paid in wages or in benefits, which may include health,
safety, comfort, longer breaks, and fewer working hours. In some cases, improved
health or safety can increase worker productivity and firm profits. In these cases
firms will provide these benefits out of their own self interest. However, often these
benefits do not directly increase profits and so the firm regards such benefits to
workers as costs to itself, in which case these costs are like wages.
A profit-maximizing firm is indifferent between compensating workers with wages
or compensating them with health, safety, and leisure benefits of the same value
when doing so does not affect overall productivity. What the firm really cares about
is the overall cost of the total compensation package.
Workers, on the other hand, do care about the mix of compensation they receive.
Few of us would be willing to work for no money wage and instead take our entire
pay in benefits. We want some of each. Furthermore, when our overall
compensation goes up, we tend to desire more non-monetary benefits.
For most people, comfort and safety are what economists call “normal goods,” that
is, goods that we demand more of as our income rises. Factory workers in third
no different. Unfortunately, many of them have
productivity, and so their overall compensation level is low. Therefore, they want
most of their compensation in wages and little in health or safety improvements.
Evaluating Anti-Sweatshop Proposals
For more on incentives facing lobbyists, listen to the EconTalk podcast Bruce Yandle on
Bootleggers and Baptists.
The anti-sweatshop movement consists of unions, student groups, politicians,
celebrities, and religious groups.7 Each group has its own favored “cures” for
sweatshop conditions. These groups claim that their proposals would help third
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.8
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.
The aforementioned Charles Kernaghan testified before Congress on one of these
pieces of legislation, claiming:
Once passed, this legislation will reward decent U.S. companies which are striving to adhere to
the law. Worker rights standards in China, Bangladesh and other countries across the world will
be raised, improving conditions for tens of millions of working people. Your legislation will for
the first time also create a level playing field for American workers to compete fairly in the
Contrary to his assertion, anti-sweatshop laws would make third world workers
worse off by lowering the demand for their labor. As his testimony alludes to
though, such laws would make some American workers better off because they
would no longer have to compete with third world labor: U.S. consumers would be,
to some extent, a captive market. Although Kernaghan and some other opponents
of sweatshops claim that they are attempting to help third world workers, their true
motives are revealed by the language of one of these pieces of legislation:
“Businesses have a right to be free from competition with companies that use
sweatshop labor.” A more-honest statement would be, “U.S. workers have a right
not to face competition from poor third world workers and by outlawing competition
from the third world we can enhance union wages at the expense of poorer people
who work in sweatshops.”
Kernaghan and other first world union members pretend to take up the cause of
poor workers but the policies they advocate would actually make those very
workers worse off. As economist David Henderson said, “[s]omeone who
intentionally gets you fired is not your friend.”10 Charles Kernaghan is no friend to
third world workers.
Not only are sweatshops better than current worker alternatives, but they are also
part of the process of development that ultimately raises living standards. That
process took about 150 years in Britain and the United States but closer to 30 years
in the Japan, South Korea, Hong Kong, and Taiwan.
When companies open sweatshops they bring technology and physical capital with
them. Better technology and more capital raise worker productivity. Over time this
raises their wages. As more sweatshops open, more alternatives are available to
workers raising the amount a firm must bid to hire them.
The good news for sweatshop workers today is that the world has better technology
and more capital than ever before. Development in these countries can happen
even faster than it did in the East Asian tigers. If activists in the United States do
not undermine the process of development by eliminating these countries’ ability to
attract sweatshops, then third world countries that adopt market friendly
institutions will grow rapidly and sweatshop pay and working conditions will
improve even faster than they did in the United States or East Asia. Meanwhile,
what the third world so badly needs is more “sweatshop jobs,” not fewer.
Walter Williams, “Sweatshop Exploitation.” January 27, 2004. Paul Krugman, “In Praise of Cheap
Labor, Bad Jobs at Bad Wages are Better Than No Jobs at All.” Slate, March 20, 1997.
Paul Krugman, New York Times. April 22, 2001.
Benjamin Powell and David Skarbek, “Sweatshop Wages and Third World Living Standards: Are the
Jobs Worth the Sweat?” Journal of Labor Research. Vol. 27, No. 2. Spring 2006.
All figures are reproduced from our Journal of Labor Research article. See the original article for notes
on data sources and quantification methods.
Data on actual hours worked were not available. Therefore, we provided earnings estimates based on
various numbers of hours worked. Since one characteristic of sweatshops is long working hours, we
believe the estimates based on 70 hours per week are the most accurate.
I am excluding from my analysis any situation where a firm or government uses the threat of violence
to coerce the worker into accepting the job. In those situations, the job is not better than the next
best alternative because otherwise a firm wouldn’t need to use force to get the worker to take the job.
It is a classic mix of “bootleggers and Baptists.” Bootleggers in the case of sweatshops are the U.S.
unions who stand to gain when their lower priced substitute, 3rd world workers, is eliminated from the
market. The “Baptists” are the true but misguided believers.
These minimums are determined by laws and regulations of the country of origin. For a discussion of
why these laws should not be followed see Benjamin Powell, “In Reply to Sweatshop Sophistries.”
Human Rights Quarterly. Vol. 28. No.4. Nov. 2006.
Testimonies at the Senate Subcommittee on Interstate Commerce, Trade and Tourism
Hearing. Statement of Charles Kernaghan. February 14, 2007.
David Henderson, “The Case for Sweatshops.” Weekly Standard, 7 February 2000.
Harsh Conditions Create Public Support for Reform
The word “sweatshop” conjures up images of cramped, dangerous, and filthy factories
in New York’s Lower East Side. Immigrant women and children worked long hours in
these factories for no benefits and little pay. To make ends meet after 15-hour
workdays, many workers brought more work home in the evenings.
In 1900, workers formed the International Ladies’ Garment Workers’ Union (ILGWU) to
organize against low wages and unsafe working conditions. In November 1909, ILGWU
organized the first garment workers’ strike, known as “The Great Revolt”. The protest
brought 60,000 New York City garment workers to the streets to fight for their rights.
Women and children on the picket lines were beaten or targeted with guns. Yet, ILGWU
prevailed, winning wage and hour standards and impartial arbitration of disputes. Still
there was a long fight ahead.
Sweatshop conditions received further attention after a fire in New York’s Triangle
Shirtwaist factory in 1911. Locked exits prevented people from escaping. With no other
hope, some jumped to their deaths from Triangle’s high-floor windows, while others
were burnt alive. One hundred and forty-six workers died.
Sweeping national legislation was finally enacted in 1938 when President Roosevelt
signed the Fair Labor Standards Act (FLSA). This law – enforced to this day – sets a
minimum wage, requires overtime pay after 40 hours a week, and prohibits child labor
and industrial homework. It brought protection and relief to tens of thousands of people
working in factories.
Why Sweatshops Are Back
In recent decades, many garment manufacturers have moved overseas and unions
have become less powerful.
Devastating budget cuts during the Reagan and Bush administrations severely limited
US Department of Labor (DOL) policing of garment factories. There are now only 800
wage and hour inspectors employed by DOL to inspect six million work sites of all kinds
in the USA. This often makes it easy to avoid inspection.
Sweatshops are often mobile operations, making them even more difficult to regulate.
“The equipment is really just a few sewing machines,” said Ginny Coughlin of UNITE
(Union of Needletrades, Industrial and Textile Employees). “Just rent space, pay the
electric bill, and you’re in business.”
FLSA is not always enforced and violations are rampant. Sweatshops are again a
familiar fixture in the garment industry. DOL estimates that 50% of 22,000 registered
garment contractors pay less than minimum wage, two-thirds do not pay overtime and
one-third operate with serious health and safety violations. Workers who try to organize
and protest poor working conditions are often fired.
New York City’s Sweatshop Revival
New York City sweatshops operate behind locked doors — often in the same buildings
used more than sixty years ago in the Lower East Side and the Garment District. Steam
from clothing presses can be seen spewing from pipes stuck through the boarded-up
windows. DOL estimates that 4,500 of New York City’s 7,000 garment factories are
Across the USA
Sweatshops are also common in other cities with large immigrant communities. Greater
Los Angeles is a major example.
Struggling to build a better life in their new country, Asian and Hispanic immigrants often
work under slave-like conditions. They toil to repay thousands of dollars to those who
smuggled them into the USA. Today, at the turn of the century, most garment workers
are poor immigrant women.
A Shocking Example
In August 1995, the nation was outraged by news that 72 Thai immigrants
worked under slave-like conditions. Local and Federal law enforcement agents
conducted a raid on this sweatshop in El Monte, California, just east of Los
The immigrants worked for 69 cents an hour, locked in an apartment complex
surrounded by razor wire. Workers were threatened with rape and murder if
they stopped working. After the raid, Labor Secretary Robert Reich launched a
crusade against sweatshops.
Proposed Reform Legislation
Media coverage of sweatshops has brought public outrage. In response, the Stop
Sweatshops Act is now in the US Congress. The act defines sweatshops as:
…unsafe and unhealthy working conditions, often including locked exits and poor
ventilation … low wages or no wages, long hours of work with no overtime pay, and
retaliation against workers who stand up for their rights.
The proposed law would make both contractors and retailers liable for violations of
minimum wage, overtime standards, child labor, or industrial homework.
Supporters of the bill say clothing businesses must be held responsible — companies
can check their suppliers more readily than individual consumers can. The law creates
strong incentives for businesses to ensure clothing is made under decent conditions. To
date, this act has not been passed by Congress. You can support this act by working
with the advocacy groups listed on our links page and by using the political lobbying
Addressing the Issues
The National Labor Committee (NLC), a human rights organization based in New York,
is in the vanguard of exposing labor abuses. In April 1997, the NLC revealed that a line
of clothing endorsed by Kathie Lee Gifford was made in Honduran sweatshops — often
by children. This was well publicized and resulted in a signed agreement between
Gifford and the NLC. The manufacturers agreed to independent monitoring of their
Honduran factories by local human rights organizations.
The Giffords also took matters into their own hands: Frank Gifford gave envelopes of
money to the workers. Angered that they not been paid in so long, many workers stayed
home and did not receive this compensation.
Who Should Check the Manufacturers?
Due to public outrage over sweatshop conditions, many clothing manufacturers now
hire outside companies to inspect working conditions in their factories. This
third-party monitoring has become a growth industry, the NLC says, funded largely by
the corporations being investigated. The concern is that manufacturers might influence
their monitors to present an overly favorable picture to consumers.
When asked if any company in particular was making substantial improvements, Braune
said that the NLC was,”hard-pressed to make a distinction between any manufacturer.”
The only exception, the NLC believes, is El Salvadoran factories making clothing for
The Gap. In 1995, The Gap signed an agreement with the NLC agreeing to independent
monitors, not employed by The Gap. Instead they come from the Human Rights
Ombudsman’s offices in El Salvador and other Central American countries. The NLC
believes that this is the model all manufacturers should follow.
However, Ginny Coughlin, spokeswoman for UNITE, said the best way to rid the
garment industry of sweatshops is to organize workers. “Tremendous progress is being
made … more and more factories are unionizing.” Although workers in the United States
and overseas are also fired every day for trying to organize and educate themselves
about their rights.
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