Arnold Kling  

Sweatshop Wages

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are better than average wages, according to Benjamin Powell and David Skarbek. Their longer paper is here. It says,

The apparel industry has been widely criticized for "exploiting" Third World workers in sweatshops, but the data show that these workers are better off than most people in their countries.

...In 9 of 11 countries, the reported sweatshop wages equal or exceed average income, doubling it in Cambodia, Haiti, Nicaragua, and Honduras (at 70 hours). However, these figures do not include non-monetary compensation. Nike's employees in Indonesia, for example, receive free health care and meals in addition to their wages...most of the jobs that some anti-sweatshop advocates protest raise their workers' standard of living above their nation's average.

I always say that what low-skilled workers need are not fewer Wal-Marts, but more of them. The same could be said of sweatshops.

Thanks to Don Boudreaux for the pointer.

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CATEGORIES: International Trade

TRACKBACKS (3 to date)
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The author at Trade Diversion in a related article titled Sweatshops: Still Good writes:
    This is entirely unsurprising to anyone that's followed the sweatshop debate for a while, but here's more evidence that sweatshops are good: We examined the apparel industry in 10 Asian and Latin American countries often accused of having sweatshops an... [Tracked on August 2, 2005 2:55 PM]
The author at Private Sector Development Blog in a related article titled Sweatshops writes:
    Benjamin Powell and David Skarbek write on sweatshop wages in the Christian Science Monitor:While more than half of the population in most of the countries we studied lived on less than $2 per day, in 90 percent of the countries, working a 10-hour day ... [Tracked on August 3, 2005 9:21 AM]
The author at New Economist in a related article titled Why feminists should support sweatshops writes:
    There have been some recent blog posts about sweatshops, citing Powell’s and Skarbek's piece in Tuesday's Christian Science Monitor (hat tips: PSD, EconLog, Cafe Hayek). This is a thorough analysis of the economic dimensions of garment working. But w... [Tracked on August 5, 2005 8:37 AM]
COMMENTS (10 to date)
spencer writes:

Believe it or not, from an old "liberal" I agree with you completely.

Multinationals, by bringing in capital and institutional knowledge are a major force for improving the living standards in the third world.

Years ago I worked for a major US multinational in Venezuela. Our employees on the factory floor and elsewhere were moving up into what we could consider middle class. They could buy a car, a home and send their kids to school. Even in Veneezuela -- one of Latin americas wealthiest countries --their parents and many of their friends could not achieve these modest standards.

Nick writes:

I haven't read the article, but it seems likely enough.

My question is, if we consider a limiting case where the "average" wage in such a country was $0, would there be any ethical issues with paying someone there pennies an hour, since that is better than paying them nothing? Or assume there was a country where slavery was legal. Now assume that some slave owner will "free" some of his slaves to an external party. What ethical constraints would there be on that party in regards to compensating these workers?
Such cases may seem too unrealistic to be worth considering. But if they do suggest anything, it is a more general question - are there any ethical constraints on contracts between parties where the two parties have extremely different values/utilities per unit of currency?
It might be worth digging into our own (US) past to see how the African slaves who were freed managed to enter the ranks of the working classes. Certainly, there were many who went from being "under paid" to being "fairly" paid. By analogy, some LDCs are LDCs because the governments wouldn't let in foreign corporations. (Apologies if "LDC" isn't PC anymore.)

Robert writes:

If the MNC is improving the lot of its employees, to what extent is it important that it have altruistic motives for doing so? If there was evidence that the profits of MNCs were being extracted at the expense of the budgets of more altruistic organizations, it might be an interesting question, but in the case where those motivated by greed are doing good, and those motivated by altruism are also doing good, I'm inclined to say let good be done.

spencer writes:

You realize of course, that your fellow bloger, Bryan, would strongly disagree with you on this from his comments on the waiters on cruise ships the other day.

He seem to think that as long as foreign labor is paid less then US labor that foreign labor is being "exploited". He seems to blame "world poverty" on US limits on immigration. But at the same time he believes immigrants pull US wages down -- cann't seem to make up his mind.

Maybe the two of you should debate the issue.

Ivan Kirigin writes:

Perhaps you've heard of American Apparel. They use a great deal of sex in their advertisements targeting hipsters and their slogan is "Made in Downtown LA. Sweatshop Free. Brand-Free Clothes". That last part is what makes them desirable fashion-wise, as far as I'm concerned.

They talk about "vertical integration", and how that helps them respond to the latest trends and such faster than the competition.

It all sounds great, except for the rhetoric. I suppose a sweatshop in LA is a bit worse than Cambodia, but your point stands tall. Why make low skill labor illegal? Only those without skills pay. I also suppose that they are making money selling a clean conscious to economically illiterate hipsters. There is probably a big market for that these days... "markets in everything", as they say.

Either way, their clothes are great, if a bit pricey.

dsquared writes:

If you compare income per *worker* in an industry to income per *capita* in a country, then you're using a measure which is biased upward surely?

Mr. Econotarian writes:

My cousin in El Salvador is a clear example of "spillover effects" from multinational corporations.

She went to work for Xerox in El Salvador with just a business background. After a few years, she learned enough about computers from her job to leave it and start up Tecoloco, the "Monster.Com of Central America".

Jacqueline writes:

Although I agree with the authors, I think there is a flaw in their study in that they are using money income to make comparisons.

In many of these countries many people are still working and living in traditional communities where they make a lot of things for themselves and barter. The amount of money they are living on per day doesn't necessarily reflect their quality of life. Whereas factory workers typically live in the city and need to pay for a lot of things that their "poorer" countrymen in rural areas get in other ways.

I'd like to see a study that looks at the quality of life of sweatshop workers versus other workers and people in their countries. How long do they live? How healthy are they? How's their nutrition? What's their infant and child mortality rate, and how healthy, well-fed, and educated are their children? How much leisure time? Etc.

I realize that these things are difficult to quantify and thus don't get measured and compared a lot. But what's the point in using the things that are easiest to quantify if they don't give you an accurate picture of what's going on?

DOR writes:

Nike's workers in Indonesia . . . since when did Nike get into the manufacturing business?

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