SOAS Policy Forum on Sweatshops

On Monday I gave a talk at SOAS University London for a group of students titled “Can Sweatshops Help the World’s Poorest?” The gist of the talk was to present basic economic reasoning on wage determination and wage composition, and use this reasoning to dispel popular myths surrounding sweatshops.

In making the arguments, I draw on a range of evidence including arguments that will be familiar to Econlib readers (sweatshop wages are high relative to available alternatives and the national averages in many countries) and extended in Ben Powell’s more recent book, Out of Poverty. I also focus heavily on qualitative interview evidence presented in a paper I co-authored to provide students with some understanding as to meanings people attach to their own choices to work in sweatshops and how they evaluate the trade-offs they face.

Drawing on interviews conducted in two garment-manufacturing plants in El Salvador in 2009, the work speaks to how people in the factories evaluate the composition of their wages and how they view their own choices to leave home production for factory work. The interviews are not claiming to be representative of all or even average sweatshop workers, nor to generate facts or data that can be necessarily generalized to much wider cases. The work is meant to complement other studies by providing insight into the choice processes of real people. Here are a few excerpts:

“They pay me $35.00 per week and I can manage with that. But what if I wasn’t able to make that much working from home? If you work from home, you also spend money daily, and sometimes, we spend more than we earn. Sales are not a good business right now. When I have a conversation with someone, I tell them that we better hope that the factories won’t begin to flag because the factories help people a lot. Factories and businesses like this one help women a lot.”

“With the way the situation is right now – now that I am at this company, it’s not that I can do everything; but now that I am here, I feel that I will be able to [send the children to school]. When I earned less, I only had enough to buy one school uniform, just a few notebooks; I would buy them little by little. Now that I am working here and I am making a bit more money, I feel that I can balance the expenses better.”

“I do like to work here. I don’t like working in the fields anymore. I make more money here so it’s better here. There are also other benefits the company provides and that help us at home and with the family. . . . I think that working in a factory you have the benefit of having medical insurance, medicine, and benefits such as now they are providing school packages for our children who go to school. They give us vouchers for shoes. Those are benefits you can have at a company. In a job as a housekeeper, you don’t get any of that. It does have its advantages sometimes because you don’t have to pay for transportation or food but you don’t get any other benefits.”

My talk also tried to show how employee preferences for wage composition and the firms’ drive to minimize costs determine what the mix of monetary and nonmonetary wages looks like. For example, in the cases we examined in El Salvador, the firms supplied transportation to and from the factory for workers in nearby villages. Why? For the firm, employee turnover and lack of punctuality are costly. For employees, transaction costs of getting to work were high. The roads are poorly maintained, there is no public transportation, and vehicles are relatively very expensive. In a Coasian manner, there were gains from firms supplying subsidized transportation and employees were satisfied as having this part of their total compensation (ie – accepting lower monetary wage in exchange for reliable transport to work).

The majority of workers in these factories were women of childbearing age. Similar Coasian reasoning can help make sense of why these profit-maximizing firms had on-site medical clinics providing basic services.

In the Q&A there were many great questions. Here is one: Suppose I buy the arguments that sweatshops can provide better monetary opportunities than the alternatives these workers face, she said. What does this work say about power relations or the ability for these jobs to exploit women? (Setting aside cases of human trafficking, slavery, or outright coercion).

I gave three responses. First, the step from home production into the factory floor is often the first opportunity these women have had to gain marketable skills. While they may experience limited upward mobility within any given firm, many women discussed how they had been able to make lateral moves in the labor market much more easily after getting the initial job. Increasing one’s productivity strikes me as empowering. Historically, more economic freedom is correlated with greater political and social freedom. Second, higher incomes for women when they come into the factories would tend to decrease asymmetries of power within the home specifically, and outside the workplace more generally. Third, these jobs provide women with better ability to improve the lives of their children, certainly something they expressed as meaningful and of central importance to them.

I very much thank Jonathon Kitson for organizing the Policy Forum group for having me out for a great discussion, especially when these ideas are considered controversial. (I was told by more than one student that I was probably the only person who has ever stepped foot on SOAS campus and argued in support of sweatshops).