This week Dr Emily Skarbek came to talk to the Policy Forum about how sweatshops can benefit the poor. Note that this wasn’t a paternalistic discussion about how lucky people are to work 14 hour days earning cents per hour, but a demonstration of the choices some of the very poorest in the world make. Some research points to the fact that a worker in a garment factory would generally earn above the national average wage, and this being sometimes up to seven times as much (!). Taking us through the economics of why people to choose to take on labour that to us in our WIERD (Western, Industrialised, Educated, Rich, Developed) perspective wouldn’t be a rational choice, but is a better alternative than agricultural or homemaking work for would-be sweatshop workers.
The consequences of well intentioned but poorly thought out campaigns to shut down factories that employ child labour for instance, mean children are pushed into more exploitative and dangerous work. Although many imagine that the alternative would be school, these alternatives actually include rock breaking, scavenging through rubbish heaps and prostitution. Dr Skarbek pointed out that once a country reaches about $10,000 per capita GDP, child labour essentially disappears as parents are then rich enough to send their children to school. Furthermore, pushing up minimum wages has large disemployment effects, and the benefits that many firms provide, such as healthcare and travel were lost to those who were made redundant.
The event ended on a relatively optimistic note. An audience member pointed out how opponents of sweatshop labour aren’t just ignorant of economics, but their own countries history. It took the UK around 150 years to develop to a point where child labour was uneconomical, in the case of rapidly developing countries this has taken only a generation. We should therefore expect to see sweatshops disappear as economic development continues; last year was the first time in human history that less than 10% of the worlds population was living in absolute poverty. It was again emphasised that doing no harm should be foremost in policy makers minds.
The next economics event at the Policy Forum will be Michael Story, laying out the case for a free market welfare state, and the role that a negative income tax would play in such a system.
Powell, B., & Skarbek, D. (2006). Sweatshops and third world living standards: Are the jobs worth the sweat?. Journal of Labor Research, 27(2), 263-274.
Lipsey, R. E., & Sjoholm, F. (2001). Foreign direct investment and wages in Indonesian manufacturing (No. w8299). National Bureau of Economic Research.
Brown, D. K., Deardorff, A. V., & Stern, R. M. (2003). The effects of multinational production on wages and working conditions in developing countries (No. w9669). Cambridge, MA: National Bureau of Economic Research.
Powell, B. (2014). Out of poverty: sweatshops in the global economy. Cambridge University Press.
Skarbek, D., Skarbek, E., Skarbek, B., & Skarbek, E. (2012). Sweatshops, Opportunity Costs, and Non‐Monetary Compensation: Evidence from El Salvador1. American Journal of Economics and Sociology, 71(3), 539-561.
Harrison, A., & Scorse, J. (2010). Multinationals and anti-sweatshop activism. The American Economic Review, 100(1), 247-273.