the 2006 Journal

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. 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.

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.

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

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.