Secrets, Lies, and Sweatshops

Read the articles “Secrets, Lies, and Sweatshops” by Roberts and Engardio on p. 529-534 and “In Defense of ‘Sweatshops'” by Powell.
The topic question for Essay 3 is: Do sweatshops in developing countries have a positive or negative effect on workers and/or consumers?  I want you to write 1,000 word argumentative essay in MLA format.  The paper should contain 3-4 direct quotes of one sentence or less from 3-4 sources.  These quotes will come from the article(s) I assigned you to read from the book and 1-2 articles from GALILEO.  You cannot quote from any source that does not come from the book or GALILEO. You need to have a Works Cited page.  If you need a refresher on how to do parenthetical notations, I want you to read p. 208-214 in your Easy Writer book and the document entitled In-Text Citations and Quote Sandwiches in the Writing Resources.  Read p. 217-245 in your Easy Writer book to help you with your Works Cited.  The How to in the Lessons folder on How to Get Works Cited Information from GALILEO Articles should be very helpful for creating your Works Cited page.
Secrets, Lies, And Sweatshops
American importers have long answered criticism of conditions at their Chinese suppliers with
labor rules and inspections. But many factories have just gotten better at concealing abuses
November 27, 2006, 12:00 AM EST
By Dexter Roberts & Pete Engardio, with Aaron Bernstein in Washington, Stanley Holmes in
Seattle, and Xiang Ji in Beijing
Tang Yinghong was caught in an impossible squeeze. For years, his employer, Ningbo Beifa
Group, had prospered as a top supplier of pens, mechanical pencils, and highlighters to Wal-Mart
Stores (WMT ) and other major retailers. But late last year, Tang learned that auditors from WalMart, Beifa’s biggest customer, were about to inspect labor conditions at the factory in the
Chinese coastal city of Ningbo where he worked as an administrator. Wal-Mart had already on
three occasions caught Beifa paying its 3,000 workers less than China’s minimum wage and
violating overtime rules, Tang says. Under the U.S. chain’s labor rules, a fourth offense would
end the relationship.
Help arrived suddenly in the form of an unexpected phone call from a man calling himself Lai
Mingwei. The caller said he was with Shanghai Corporate Responsibility Management &
Consulting Co., and for a $5,000 fee, he’d take care of Tang’s Wal-Mart problem. “He promised
us he could definitely get us a pass for the audit,” Tang says.
Lai provided advice on how to create fake but authentic-looking records and suggested that Beifa
hustle any workers with grievances out of the factory on the day of the audit, Tang recounts. The
consultant also coached Beifa managers on what questions they could expect from Wal-Mart’s
inspectors, says Tang. After following much of Lai’s advice, the Beifa factory in Ningbo passed
the audit earlier this year, Tang says, even though the company didn’t change any of its practices.
For more than a decade, major American retailers and name brands have answered accusations
that they exploit “sweatshop” labor with elaborate codes of conduct and on-site monitoring. But
in China many factories have just gotten better at concealing abuses. Internal industry documents
reviewed by BusinessWeek reveal that numerous Chinese factories keep double sets of books to
fool auditors and distribute scripts for employees to recite if they are questioned. And a new
breed of Chinese consultant has sprung up to assist companies like Beifa in evading audits.
“Tutoring and helping factories deal with audits has become an industry in China,” says Tang,
34, who recently left Beifa of his own volition to start a Web site for workers.
A lawyer for Beifa, Zhou Jie, confirms that the company employed the Shanghai consulting firm
but denies any dishonesty related to wages, hours, or outside monitoring. Past audits had
“disclosed some problems, and we took necessary measures correspondingly,” he explains in a
letter responding to questions. The lawyer adds that Beifa has “become the target of accusations”
by former employees “whose unreasonable demands have not been satisfied.” Reached by cell
phone, a man identifying himself as Lai says that the Shanghai consulting firm helps suppliers
pass audits, but he declines to comment on his work for Beifa.
Wal-Mart spokeswoman Amy Wyatt says the giant retailer will investigate the allegations about
Beifa brought to its attention by BusinessWeek. Wal-Mart has stepped up factory inspections, she
adds, but it acknowledges that some suppliers are trying to undermine monitoring: “We
recognize there is a problem. There are always improvements that need to be made, but we are
confident that new procedures are improving conditions.”
CHINESE EXPORT manufacturing is rife with tales of deception. The largest single source of
American imports, China’s factories this year are expected to ship goods to the U.S. worth $280
billion. American companies continually demand lower prices from their Chinese suppliers,
allowing American consumers to enjoy inexpensive clothes, sneakers, and electronics. But
factory managers in China complain in interviews that U.S. price pressure creates a powerful
incentive to cheat on labor standards that American companies promote as a badge of responsible
capitalism. These standards generally incorporate the official minimum wage, which is set by
local or provincial governments and ranges from $45 to $101 a month. American companies also
typically say they hew to the government-mandated workweek of 40 to 44 hours, beyond which
higher overtime pay is required. These figures can be misleading, however, as the Beijing
government has had only limited success in pushing local authorities to enforce Chinese labor
laws. That’s another reason abuses persist and factory oversight frequently fails.
Some American companies now concede that the cheating is far more pervasive than they had
imagined. “We’ve come to realize that, while monitoring is crucial to measuring the performance
of our suppliers, it doesn’t per se lead to sustainable improvements,” says Hannah Jones, Nike
Inc.’s (NKE ) vice-president for corporate responsibility. “We still have the same core problems.”
This raises disturbing questions. Guarantees by multi-nationals that offshore suppliers are
meeting widely accepted codes of conduct have been important to maintaining political support
in the U.S. for growing trade ties with China, especially in the wake of protests by unions and
antiglobalization activists. “For many retailers, audits are a way of covering themselves,” says
Auret van Heerden, chief executive of the Fair Labor Assn., a coalition of 20 apparel and
sporting goods makers and retailers, including Nike, Adidas Group, Eddie Bauer, and Nordstrom
(JWN ). But can corporations successfully impose Western labor standards on a nation that lacks
real unions and a meaningful rule of law?
Historically associated with sweatshop abuses but now trying to reform its suppliers, Nike says
that one factory it caught falsifying records several years ago is the Zhi Qiao Garments Co. The
dingy concrete-walled facility set near mango groves and rice paddies in the steamy southern city
of Panyu employs 600 workers, most in their early 20s. They wear blue smocks and lean over
stitching machines and large steam-blasting irons. Today the factory complies with labor-law
requirements, Nike says, but Zhi Qiao’s general manager, Peter Wang, says it’s not easy. “Before,
we all played the cat-and-mouse game,” but that has ended, he claims. “Any improvement you
make costs more money.” Providing for overtime wages is his biggest challenge, he says. By
law, he is supposed to provide time-and-a-half pay after eight hours on weekdays and between
double and triple pay for Saturdays, Sundays, and holidays. “The price [Nike pays] never
increases one penny,” Wang complains, “but compliance with labor codes definitely raises
A Nike spokesman says in a written statement that the company, based in Beaverton, Ore.,
“believes wages are best set by the local marketplace in which a contract factory competes for its
workforce.” One way Nike and several other companies are seeking to improve labor conditions
is teaching their suppliers more efficient production methods that reduce the need for overtime.
The problems in China aren’t limited to garment factories, where labor activists have
documented sweatshop conditions since the early 1990s. Widespread violations of Chinese labor
laws are also surfacing in factories supplying everything from furniture and household
appliances to electronics and computers. Hewlett-Packard, (HPQ ) Dell (DELL ), and other
companies that rely heavily on contractors in China to supply notebook PCs, digital cameras, and
handheld devices have formed an industry alliance to combat the abuses.
A compliance manager for a major multinational company who has overseen many factory
audits says that the percentage of Chinese suppliers caught submitting false payroll records has
risen from 46% to 75% in the past four years. This manager, who requested anonymity, estimates
that only 20% of Chinese suppliers comply with wage rules, while just 5% obey hour limitations.
A RECENT VISIT by the compliance manager to a toy manufacturer in Shenzhen illustrated
the crude ways that some suppliers conceal mistreatment. The manager recalls smelling strong
paint fumes in the poorly ventilated and aging factory building. Young women employees were
hunched over die-injection molds, using spray guns to paint storybook figurines. The compliance
manager discovered a second workshop behind a locked door that a factory official initially
refused to open but eventually did. In the back room, a young woman, who appeared to be under
the legal working age of 16, tried to hide behind her co-workers on the production line, the
visiting compliance manager says. The Chinese factory official admitted he was violating
various work rules.
The situation in China is hard to keep in perspective. For all the shortcomings in factory
conditions and oversight, even some critics say that workers’ circumstances are improving
overall. However compromised, pressure from multinationals has curbed some of the most
egregious abuses by outside suppliers. Factories owned directly by such corporations as
Motorola Inc (MOT ). and General Electric Co. (GE ) generally haven’t been accused of
mistreating their employees. And a booming economy and tightening labor supply in China have
emboldened workers in some areas to demand better wages, frequently with success. Even so,
many Chinese laborers, especially migrants from poor rural regions, still seek to work as many
hours as possible, regardless of whether they are properly paid.
In this shifting, often murky environment, labor auditing has mushroomed into a multimilliondollar industry. Internal corporate investigators and such global auditing agencies as Cal Safety
Compliance, sgs of Switzerland, and Bureau Veritas of France operate a convoluted and
uncoordinated oversight system. They follow varying corporate codes of conduct, resulting in
some big Chinese factories having to post seven or eight different sets of rules. Some factories
receive almost daily visits from inspection teams demanding payroll and production records,
facility tours, and interviews with managers and workers. “McDonald’s (MCD ), Walt Disney,
(DIS ) and Wal-Mart are doing thousands of audits a year that are not harmonized,” says van
Heerden of Fair Labor. Among factory managers, “audit fatigue sets in,” he says.
Some companies that thought they were making dramatic progress are discovering otherwise. A
study commissioned by Nike last year covered 569 factories it uses in China and around the
world that employ more than 300,000 workers. It found labor-code violations in every single
one. Some factories “hide their work practices by maintaining two or even three sets of books,”
by coaching workers to “mislead auditors about their work hours, and by sending portions of
production to unauthorized contractors where we have no oversight,” the Nike study found.
THE FAIR LABOR ASSN. released its own study last November based on unannounced audits
of 88 of its members’ supplier factories in 18 countries. It found an average of 18 violations per
factory, including excessive hours, underpayment of wages, health and safety problems, and
worker harassment. The actual violation rate is probably higher, the fla said, because “factory
personnel have become sophisticated in concealing noncompliance related to wages. They often
hide original documents and show monitors falsified books.”
While recently auditing an apparel manufacturer in Dongguan that supplies American importers,
the corporate compliance manager says he discussed wage levels with the factory’s Hong Kongbased owner. The 2,000 employees who operate sewing and stitching machines in the multi-story
complex often put in overtime but earn an average of only $125 a month, an amount the owner
grudgingly acknowledged to the compliance manager doesn’t meet Chinese overtime-pay
requirements or corporate labor codes. “These goals are a fantasy,” the owner said. “Maybe in
two or three decades we can meet them.”
Pinning down what Chinese production workers are paid can be tricky. Based on Chinese
government figures, the average manufacturing wage in China is 64 cents an hour, according to
the U.S. Bureau of Labor Statistics and demographer Judith Banister of Javelin Investments, a
consulting firm in Beijing. That rate assumes a 40-hour week. In fact, 60- to 100-hour weeks are
common in China, meaning that the real manufacturing wage is far less. Based on his own
calculations from plant inspections, the veteran compliance manager estimates that employees at
garment, electronics, and other export factories typically work more than 80 hours a week and
make only 42 cents an hour.
BusinessWeek reviewed summaries of 28 recent industry audits of Chinese factories serving U.S.
customers. A few factories supplying Black & Decker, (BDK ) Williams-Sonoma, and other
well-known brands turned up clean, the summaries show. But these facilities were the
At most of the factories, auditors discovered records apparently meant to falsify payrolls and
time sheets. One typical report concerns Zhongshan Tat Shing Toys Factory, which employs 650
people in the southern city of Zhongshan. The factory’s main customers are Wal-Mart and
Target. (TGT ) When an American-sponsored inspection team showed up this spring, factory
managers produced time sheets showing each worker put in eight hours a day, Monday through
Friday, and was paid double the local minimum wage of 43 cents per hour for eight hours on
Saturday, according to an audit report.
But when auditors interviewed workers in one section, some said that they were paid less than
the minimum wage and that most of them were obliged to work an extra three to five hours a
day, without overtime pay, the report shows. Most toiled an entire month without a day off.
Workers told auditors that the factory had a different set of records showing actual overtime
hours, the report says. Factory officials claimed that some of the papers had been destroyed by
Wal-Mart’s Wyatt doesn’t dispute the discrepancies but stresses that the company is getting more
aggressive overall in its monitoring. Wal-Mart says it does more audits than any other company–
13,600 reviews of 7,200 factories last year alone–and permanently banned 141 factories in 2005
as a result of serious infractions, such as using child labor. In a written statement, Target doesn’t
respond to the allegations but says that it “takes very seriously” the fair treatment of factory
workers. It adds that it “is committed to taking corrective action–up to and including termination
of the relationship for vendors” that violate local labor law or Target’s code of conduct. The
Zhongshan factory didn’t respond to repeated requests for comment.
An audit late last year of Young Sun Lighting Co., a maker of lamps for Home Depot, (HD )
Sears (SHLD ), and other retailers, highlighted similar inconsistencies. Every employee was on
the job five days a week from 8 a.m. to 5:30 p.m., with a lunch break and no overtime hours,
according to interviews with managers, as well as time sheets and payroll records provided by
the 300-worker factory in Dongguan, an industrial city in Guangdong Province. But other
records auditors found at the site and elsewhere–backed up by auditor interviews with workers–
revealed that laborers worked an extra three to five hours a day with only one or two days a
month off during peak production periods. Workers said they received overtime pay, but the
“auditor strongly felt that these workers were coached,” the audit report states.
Young Sun denies ever violating the rules set by its Western customers. In written answers to
questions, the lighting manufacturer says that it doesn’t coach employees on how to respond to
auditors and that “at present, there are no” workers who are putting in three to five extra hours a
day and getting only one or two days off each month. Young Sun says that it follows all local
Chinese overtime rules.
Home Depot doesn’t contest the inconsistencies in the audit reports about Young Sun and three
other factories in China. “There is no perfect factory, I can guarantee you,” a company
spokeswoman says. Instead of cutting off wayward suppliers, Home Depot says that it works
with factories on corrective actions. If the retailer becomes aware of severe offenses, such as the
use of child labor, it terminates the supplier. A Sears spokesman declined to comment.
Coaching of workers and midlevel managers to mislead auditors is widespread, the auditing
reports and BusinessWeek interviews show. A document obtained last year during an inspection
at one Chinese fabric export factory in the southern city of Guangzhou instructed administrators
to take these actions when faced with a surprise audit: “First notify underage trainees, underage
full-time workers, and workers without identification to leave the manufacturing workshop
through the back door. Order them not to loiter near the dormitory area. Secondly, immediately
order the receptionist to gather all relevant documents and papers.” Other pointers include
instructing all workers to put on necessary protective equipment such as earplugs and face
SOME U.S. RETAILERS SAY this evidence isn’t representative and that their auditing efforts
are working. BusinessWeek asked J.C. Penney Co. (JCP ) about audit reports included among
those the magazine reviewed that appear to show falsification of records to hide overtime and
pay violations at two factories serving the large retailer. Penney spokeswoman Darcie M.
Brossart says the company immediately investigated the factories, and its “auditors observed no
evidence of any legal compliance issues.”
In any case, the two factories are too small to be seen as typical, Penney executives argue. The
chain has been consolidating its China supply base and says that 80% of its imports now come
from factories with several thousand workers apiece, which are managed by large Hong Kong
trading companies that employ their own auditors. Quality inspectors for Penney and other
buyers are at their supplier sites constantly, so overtime violations are hard to hide, Brossart says.
Chinese factory officials say, however, that just because infractions are difficult to discern
doesn’t mean they’re not occurring. “It’s a challenge for us to meet these codes of conduct,” says
Ron Chang, the Taiwanese general manager of Nike supplier Shoetown Footwear Co., which
employs 15,000 workers in Qingyuan, Guangdong. Given the fierce competition in China for
foreign production work, “we can’t ask Nike to increase our price,” he says, so “how can we
afford to pay the higher salary?” By reducing profit margins from 30% to 5% over the past 18
years, Shoetown has managed to stay in business and obey Nike’s rules, he says.
But squeezing margins doesn’t solve the larger social issue. Chang says he regularly loses skilled
employees to rival factories that break the rules because many workers are eager to put in longer
hours than he offers, regardless of whether they get paid overtime rates. Ultimately, the
economics of global outsourcing may trump any system of oversight that Western companies
attempt. And these harsh economic realities could make it exceedingly difficult to achieve both
the low prices and the humane working conditions that U.S. consumers have been promised.

In Defense of “Sweatshops”
Benjamin Powell*
“Because sweatshops are better than the available alternatives, any reforms aimed at improving
the lives of workers in sweatshops must not jeopardize the jobs that they already have.”
I do not want to work in a third world “sweatshop.” If you are reading this on a computer,
chances are you don’t either. Sweatshops have deplorable working conditions and extremely low
pay—compared to the alternative employment available to me and probably you. That is why we
choose not to work in sweatshops. All too often the fact that we have better alternatives leads
first world activists to conclude that there must be better alternatives for third world workers too.
Economists across the political spectrum have pointed out that for many sweatshop workers the
alternatives are much, much worse.1 In one famous 1993 case U.S. senator Tom Harkin
proposed banning imports from countries that employed children in sweatshops. In response a
factory in Bangladesh laid off 50,000 children. What was their next best alternative? According
to the British charity Oxfam a large number of them became prostitutes.2
The national media spotlight focused on sweatshops in 1996 after Charles Kernaghan, of the
National Labor Committee, accused Kathy Lee Gifford of exploiting children in Honduran
sweatshops. He flew a 15 year old worker, Wendy Diaz, to the United States to meet Kathy Lee.
Kathy Lee exploded into tears and apologized on the air, promising to pay higher wages.
Should Kathy Lee have cried? Her Honduran workers earned 31 cents per hour. At 10 hours per
day, which is not uncommon in a sweatshop, a worker would earn $3.10. Yet nearly a quarter of
Hondurans earn less than $1 per day and nearly half earn less than $2 per day.
Wendy Diaz’s message should have been, “Don’t cry for me, Kathy Lee. Cry for the Hondurans
not fortunate enough to work for you.” Instead the U.S. media compared $3.10 per day to U.S.
alternatives, not Honduran alternatives. But U.S. alternatives are irrelevant. No one is offering
these workers green cards.
What are the Alternatives to Sweatshops?
Economists have often pointed to anecdotal evidence that alternatives to sweatshops are much
worse. But until David Skarbek and I published a study in the 2006 Journal of Labor Research,
nobody had systematically quantified the alternatives.3 We searched U.S. popular news sources
for claims of sweatshop exploitation in the third world and found 43 specific accusations of
exploitation in 11 countries in Latin America and Asia. We found that sweatshop workers
typically earn much more than the average in these countries. Here are the facts:
We obtained apparel industry hourly wage data for 10 of the countries accused of using
sweatshop labor. We compared the apparel industry wages to average living standards in the
country where the factories were located. Figure 1 summarizes our findings.4
Figure 1. Apparel Industry Wages as a Percent of Average National Income
Working in the apparel industry in any one of these countries results in earning more than the
average income in that country. In half of the countries it results in earning more than three times
the national average.5
Next we investigated the specific sweatshop wages cited in U.S. news sources. We averaged the
sweatshop wages reported in each of the 11 countries and again compared them to average living
standards. Figure 2 summarizes our findings.
Figure 2. Average Protested Sweatshop Wages as a Percent of Average National Income
From “In Praise of Cheap Labor,” by Paul Krugman. Slate Magazine, March 1997:
A country like Indonesia is still so poor that progress can be measured in terms of how much the
average person gets to eat; since 1970, per capita intake has risen from less than 2,100 to more
than 2,800 calories a day. A shocking one-third of young children are still malnourished—but in
1975, the fraction was more than half. Similar improvements can be seen throughout the Pacific
Rim, and even in places like Bangladesh. These improvements have not taken place because
well-meaning people in the West have done anything to help—foreign aid, never large, has lately
shrunk to virtually nothing. Nor is it the result of the benign policies of national governments,
which are as callous and corrupt as ever. It is the indirect and unintended result of the actions of
soulless multinationals and rapacious local entrepreneurs, whose only concern was to take
advantage of the profit opportunities offered by cheap labor.
Even in specific cases where a company was allegedly exploiting sweatshop labor we found the
jobs were usually better than average. In 9 of the 11 countries we surveyed, the average reported
sweatshop wage, based on a 70-hour work week, equaled or exceeded average incomes. In
Cambodia, Haiti, Nicaragua, and Honduras, the average wage paid by a firm accused of being a
sweatshop is more than double the average income in that country. The Kathy Lee Gifford
factory in Honduras was not an outlier—it was the norm.
Because sweatshops are better than the available alternatives, any reforms aimed at improving
the lives of workers in sweatshops must not jeopardize the jobs that they already have. To
analyze a reform we must understand what determines worker compensation.
What Determines Wages and Compensation?
If a Nicaraguan sweatshop worker creates $2.50 per hour worth of revenue (net of non-labor
costs) for a firm then $2.50 per hour is the absolute most a firm would be willing to pay the
worker. If the firm paid him $2.51 per hour, the firm would lose one cent per hour he worked. A
profit maximizing firm, therefore, would lay the worker off.
From Nicholas D. Kristof, The New York Times, 14 January 2004:
And so I think what Americans don’t perhaps understand is that in a country like Cambodia, the
exploitation of workers in sweatshops is a real problem, but the primary problem in places like
this is not that there are too many workers being exploited in sweatshops, it’s that there are not
enough. And a country like Cambodia would be infinitely better off if it had more factories using
the cheap labor here and giving people a lift out of the unbelievably harsh conditions in the
villages and even in the urban slums.
Of course a firm would want to pay this worker less than $2.50 per hour in order to earn greater
profits. Ideally the firm would like to pay the worker nothing and capture the entire $2.50 of
value he creates per hour as profit. Why doesn’t a firm do that? The reason is that a firm must
persuade the worker to accept the job. To do that, the firm must offer him more than his next best
available alternative.6
The amount a worker is paid is less than or equal to the amount he contributes to a firm’s net
revenue and more than or equal to the value of the worker’s next best alternative. In any
particular situation the actual compensation falls somewhere between those two bounds.
Wages are low in the third world because worker productivity is low (upper bound) and workers’
alternatives are lousy (lower bound). To get sustained improvements in overall compensation,
policies must raise worker productivity and/or increase alternatives available to workers. Policies
that try to raise compensation but fail to move these two bounds risk raising compensation above
a worker’s upper bound resulting in his losing his job and moving to a less-desirable alternative.
What about non-monetary compensation? Sweatshops often have long hours, few bathroom
breaks, and poor health and safety conditions. How are these determined?
Compensation can be paid in wages or in benefits, which may include health, safety, comfort,
longer breaks, and fewer working hours. In some cases, improved health or safety can increase
worker productivity and firm profits. In these cases firms will provide these benefits out of their
own self interest. However, often these benefits do not directly increase profits and so the firm
regards such benefits to workers as costs to itself, in which case these costs are like wages.
A profit-maximizing firm is indifferent between compensating workers with wages or
compensating them with health, safety, and leisure benefits of the same value when doing so
does not affect overall productivity. What the firm really cares about is the overall cost of the
total compensation package.
Workers, on the other hand, do care about the mix of compensation they receive. Few of us
would be willing to work for no money wage and instead take our entire pay in benefits. We
want some of each. Furthermore, when our overall compensation goes up, we tend to desire more
non-monetary benefits.
For most people, comfort and safety are what economists call “normal goods,” that is, goods that
we demand more of as our income rises. Factory workers in third world countries are no
different. Unfortunately, many of them have low productivity, and so their overall compensation
level is low. Therefore, they want most of their compensation in wages and little in health or
safety improvements.
Evaluating Anti-Sweatshop Proposals
For more on incentives facing lobbyists, listen to the EconTalk podcast Bruce Yandle on
Bootleggers and Baptists.
The anti-sweatshop movement consists of unions, student groups, politicians, celebrities, and
religious groups.7 Each group has its own favored “cures” for sweatshop conditions. These
groups claim that their proposals would help third world workers.
Some of these proposals would prohibit people in the United States from importing any goods
made in sweatshops. What determines whether the good is made in a sweatshop is whether it is
made in any way that violates labor standards. Such standards typically include minimum ages
for employment, minimum wages, standards of occupational safety and health, and hours of
Such standards do nothing to make workers more productive. The upper bound of their
compensation is unchanged. Such mandates risk raising compensation above laborers’
productivity and throwing them into worse alternatives by eliminating or reducing the U.S.
demand for their products. Employers will meet health and safety mandates by either laying off
workers or by improving health and safety while lowering wages against workers’ wishes. In
either case, the standards would make workers worse off.
The aforementioned Charles Kernaghan testified before Congress on one of these pieces of
legislation, claiming:
Once passed, this legislation will reward decent U.S. companies which are striving to adhere to
the law. Worker rights standards in China, Bangladesh and other countries across the world will
be raised, improving conditions for tens of millions of working people. Your legislation will for
the first time also create a level playing field for American workers to compete fairly in the
global economy.9
From David R. Henderson, “The Case for Sweatshops.” Weekly Standard, 7 February 2000:
The next time you feel guilty for buying clothes made in a third-world sweatshop, remember
this: you’re helping the workers who made that clothing. The people who should feel guilty are
those who argue against, or use legislation to prevent us, giving a boost up the economic ladder
to members of the human race unlucky enough to have been born in a poor country. Someone
who intentionally gets you fired is not your friend.
Contrary to his assertion, anti-sweatshop laws would make third world workers worse off by
lowering the demand for their labor. As his testimony alludes to though, such laws would make
some American workers better off because they would no longer have to compete with third
world labor: U.S. consumers would be, to some extent, a captive market. Although Kernaghan
and some other opponents of sweatshops claim that they are attempting to help third world
workers, their true motives are revealed by the language of one of these pieces of legislation:
“Businesses have a right to be free from competition with companies that use sweatshop labor.”
A more-honest statement would be, “U.S. workers have a right not to face competition from poor
third world workers and by outlawing competition from the third world we can enhance union
wages at the expense of poorer people who work in sweatshops.”
Kernaghan and other first world union members pretend to take up the cause of poor workers but
the policies they advocate would actually make those very workers worse off. As economist
David Henderson said, “[s]omeone who intentionally gets you fired is not your friend.”10
Charles Kernaghan is no friend to third world workers.
Not only are sweatshops better than current worker alternatives, but they are also part of the
process of development that ultimately raises living standards. That process took about 150 years
in Britain and the United States but closer to 30 years in the Japan, South Korea, Hong Kong,
and Taiwan.
When companies open sweatshops they bring technology and physical capital with them. Better
technology and more capital raise worker productivity. Over time this raises their wages. As
more sweatshops open, more alternatives are available to workers raising the amount a firm must
bid to hire them.
The good news for sweatshop workers today is that the world has better technology and more
capital than ever before. Development in these countries can happen even faster than it did in the
East Asian tigers. If activists in the United States do not undermine the process of development
by eliminating these countries’ ability to attract sweatshops, then third world countries that adopt
market friendly institutions will grow rapidly and sweatshop pay and working conditions will
improve even faster than they did in the United States or East Asia. Meanwhile, what the third
world so badly needs is more “sweatshop jobs,” not fewer.
Walter Williams, “Sweatshop Exploitation.” January 27, 2004. Paul Krugman, “In Praise of Cheap Labor, Bad Jobs at Bad
Wages are Better Than No Jobs at All.” Slate, March 20, 1997.
Paul Krugman, New York Times. April 22, 2001.
Benjamin Powell and David Skarbek, “Sweatshop Wages and Third World Living Standards: Are the Jobs Worth the
Sweat?” Journal of Labor Research. Vol. 27, No. 2. Spring 2006.
All figures are reproduced from our Journal of Labor Research article. See the original article for notes on data sources
and quantification methods.
Data on actual hours worked were not available. Therefore, we provided earnings estimates based on various numbers of
hours worked. Since one characteristic of sweatshops is long working hours, we believe the estimates based on 70 hours
per week are the most accurate.
I am excluding from my analysis any situation where a firm or government uses the threat of violence to coerce the worker
into accepting the job. In those situations, the job is not better than the next best alternative because otherwise a firm
wouldn’t need to use force to get the worker to take the job.
It is a classic mix of “bootleggers and Baptists.” Bootleggers in the case of sweatshops are the U.S. unions who stand to
gain when their lower priced substitute, 3rd world workers, is eliminated from the market. The “Baptists” are the true but
misguided believers.
These minimums are determined by laws and regulations of the country of origin. For a discussion of why these laws
should not be followed see Benjamin Powell, “In Reply to Sweatshop Sophistries.” Human Rights Quarterly. Vol. 28.
No.4. Nov. 2006.
Testimonies at the Senate Subcommittee on Interstate Commerce, Trade and Tourism Hearing. Statement of Charles
Kernaghan. February 14, 2007.
David Henderson, “The Case for Sweatshops.” Weekly Standard, 7 February 2000.
*Benjamin Powell is Assistant Professor of Economics at Suffolk University and Senior Economist with the Beacon Hill Institute. He is
editor of Making Poor Nations Rich: Entrepreneurship and the Process of Development.

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