“We find that most sweatshop jobs provide an above average standard of living for their workers.”

Conventional wisdom vs. empirical evidence at its finest. Un-gated full text and graphics here. .pdf here.

Many studies have shown that multinational firms pay more than domestic firms in Third World countries. Economists critical of sweatshops have responded that multinational firms’ wage data do not address whether sweatshop jobs are above average because many of these jobs are with domestic subcontractors. In this paper we compare apparel industry wages and the wages of individual firms accused of being sweatshops to measures of the standard of living in Third World economies. We find that most sweatshop jobs provide an above average standard of living for their workers.

To many economists this probably makes sense. If a country can attract foreign investment, this is a sign that the country probably has a market-friendly economic environment. If it has a market-friendly economic environment, wage competition is probably a real and present factor of the labor market. If wage competition is a real and present factor of the labor market, new entrants will have to provide some appeal to attract workers…

Random thought edit: Not really sure how I feel about this one yet. One thing I just thought of is that international firms are probably more likely to be able to hire union-busters and other thugs to monitor the workforce. This theoretically dampens the strength of the authors’ claims in two ways: (1) These benefits may disappear in a few years if countries that rely heavily on foreign investment don’t develop things like unions, pensions, and safety regulations, which is probably more likely to be the case if unions are violently and effectively suppressed. (2) Union-busters are probably kleptocrats, i.e., people who work in giant foreign factories may be more likely to have their wages corruption’ed away by their superiors. If either of these are the case, the authors’ argument is overstated.

Though both could theoretically go either way.

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One Response to ““We find that most sweatshop jobs provide an above average standard of living for their workers.””

  1. Jon Says:

    You also have to note the lack of information in labor markets in developing countries, especially.

    http://ideas.repec.org/h/eee/labchp/3-43.html

    This ultimately also comes down to collusion as well. If all the sweatshops benefit from low wages and there would be very little benefit from charging a higher wage since the labor is pretty much uniformly low skill. If they collude, then the producers win and there is very little that the workers can do about it.

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