“The Great Non-Debate Over International Sweatshops”

—Maitland

• Political strife and protests have proceeded non-rationally

• Companies have caved to protect brands

• No serious examination of issues

What Standards for International Sweatshops?

• Home-Country Standard

• “Living Wage” Standard

• Classical Liberal Standard

Home-Country Standard

• U. S. companies should pay the same wage abroad as they pay in the U. S.

• Eliminates function of the market in setting wages

• Eliminates incentive to hire foreign workers

• Disruption of local labor markets

Living Wage Standard

• Wage that allows worker to live in dignity as a human being

• Hard to operationalize

• No employment if not at a “living wage”?

• What about market forces?

Classical Liberal Standard

• A wage freely chosen by informed workers

• Critics complain of a market failure that prevents this approach from working

• Conditions in countries are so poor that free choice is meaningless

Case Against International Sweatshops

• Unconscionable wages

• Immiserization thesis

• Widening gap between rich and poor

• Collusion with repressive regimes

Maitland’s Stipulations—1

• Apparel companies are chasing cheap labor

• By U. S. standards wages are shockingly low

• Some countries repress unions

• Minimum wage levels are sometimes below poverty level

Maitland’s Stipulations—2

• Host governments do not enforce their own safety and minimum wage laws

• Some apparel companies employ contractors using child labor

• Some host countries deny their citizens basic rights

Wages and Conditions—1

• Wages are amazingly low

• Still, wages paid in sweatshops are often much higher than alternative employment

• No problem in finding employees

• These points largely conceded by critics

Wages and Conditions—2

• Critics say worker choices are irrelevant

• Real issue according to critics is basic human rights and needs

• Workers are so beaten down that they don’t realize their own exploitation

• Workers face such miserable alternative employment they accept a horrible choice

Immiserization and Inequality: Thesis

• Immiserization—the behavior of companies actually make more miserable the condition of host country workers

• Absolute decline in living standards

• Trade increases income inequality

Immiserization and Inequality:Evaluation

• Claim is false: Incomes generally increase across all strata of society

• Maitland points to Malaysia, Indonesia, Vietnam, China

• An empirical question, but general impression seems to support Maitland

Profiting from Repression

• Repression is present and persistent in some countries

• Does economic development support or weaken repression?

Why Not Pay a Little More?

• Raising cost of labor means that less will be employed

• Sweatshop workers already receive a high rate of local pay, so paying more increases local pay inequality

• Higher sweatshop wages would slow growth and hurt those at the bottom most

Increasing Sweatshop Wages Hurts the Poor?

• If wages are raised, fewer people will be employed

• Presently, sweatshop jobs are often coveted by rural poor

• Higher wages may help those who receive them, but will reduce jobs available to aspirants

World Bank Quote—1

“…urban formal workers already earn much more than the less favored majority…And inasmuch as minimum wage and other regulations discourage formal employment by increasing wage and nonwage costs, they hurt the poor who aspire to formal employment.”

World Bank Quote—2

• “…reducing hazards in the workplace is costly, and typically the greater the reduction the more it costs. Moreover, the costs of compliance often fall largely on employees through lower wages or reduced employment. As a result, setting standards too high can actually lower workers’ welfare.”

Criticism of Critics

“The critics consistently advocate policies that will benefit better-off workers at the expense of worse-off ones.”—Maitland

Effects of Accepting Criticisms

• Reduce employment in formal sector (i.e., sweatshops)

• Lower incomes in informal sector

• Reduce chances to enter formal sector

• Reduce investment

• Reduce exports

• Increase inequality and poverty

Summary—1

“The best cure for the ills of sweatshops is more sweatshops.”—Maitland

• Firms should pay prevailing market wage

• Workers can judge their own employment opportunities

Summary—2

“…it may be ethically unacceptable…to pay wages that exceed market levels”

—Maitland

• Why? Because, it will reduce employment opportunities and discourage new investment