Abstract
The standard economic and ethical case in defense of sweatshops employs the standard of the “welfare of their workers and potential workers” to argue that sweatshop regulations harm the very people they intend to help. Scholars have recently contended that once the benefits and costs are balanced, regulations do, in fact, raise worker welfare. This paper describes the short and long-run tradeoffs associated with sweatshop regulation and then examines how reasonable constructions of measures of “worker welfare” would evaluate these tradeoffs finding that the standard economic and ethical case against sweatshop regulations is well supported.
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Notes
Interested readers can see Powell (2014) for an extensive treatment of the effects of the various types of regulation. These include, among others, minimum wages (Chapter 3), health, safety, and working conditions regulation (Chapter 5), and child labor (Chapter 6). See Clark and Powell (2013) and Skarbek et al. (2012) for studies focused on working conditions regulation.
Additionally, if the minimum wage applies to all sectors of the economy and not just the industry with sweatshops, non-sweatshop workers also face the tradeoffs between points one and two and the unemployed sweatshop workers have decreased opportunities to get reemployed in other areas of the economy.
See Powell 2015, particularly Chapter 2, for a summary of the negative economic consequences for world welfare, and particularly the welfare of those trapped in poorer countries, caused by government restrictions of international labor mobility.
This unemployment estimate is derived from statutory minimum wages as they were actually enforced. It is widely appreciated that enforcement of minimum wage laws in poor countries is extremely lax (Strobl and Walsh 2000; Bell 1997; Rama 1996). Thus a vigorously enforced minimum wage, as most anti-sweatshop activists desire, would have even greater unemployment effects.
In 2011 PPP international dollars.
Curiously, though Coakley and Kates cite Powell and Zwolinski’s use of the Harrison and Scorse study and say that we must weigh these costs and benefits, they never actually perform these calculations themselves. Instead they rely on their faulty method of considering only labor’s share of a goods cost and assume consumers have fairly inelastic demand and then assert that net income could go up substantially and create a multiplier that stimulates the local economy leaving even those who lose their jobs not much worse off. Kates (2015) later attempts to make the calculation but does so incorrectly.
Rama (1996) examines the minimum wage increases in Indonesia discussed above and finds that they were associated with a 5 % decrease in investment.
If relative prices were failing to reflect the real scarcity of resources, it is possible, in theory, for a regulation to change relative prices to better reflect relative scarcities and thus eliminate deadweight losses and increase the economic pie. Advocates of sweatshop regulations have not made any convincing case that their preferred regulations could fall into this category.
The arguments in this paper equally undermine the claims made by Kates (2015) with regard to his “preference and choice” argument.
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I thank the editor and two anonymous referees for helpful comments on a prior draft of this paper.
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Powell, B. Sweatshop Regulation: Tradeoffs and Welfare Judgements. J Bus Ethics 151, 29–36 (2018). https://doi.org/10.1007/s10551-016-3227-2
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DOI: https://doi.org/10.1007/s10551-016-3227-2