The following is the conclusion from a forthcoming paper to be published in the Journal of Economics and Sociology titled, Sweatshops, Opportunity Costs, and Non-Monetary Compensation: Evidence from El Salvador (HT: Modled Behavior)
Conclusion
Few people in developed countries would enjoy working in a third-world “sweatshop” factory, as the pay and working conditions are generally much worse than opportunities in developed countries. The options available to unskilled labor in developing world are context dependent, influenced by the interaction between a variety of institutional and historical factors. Our study privileges the workers’ own perceptions and narratives about what the relevant alternatives are for their labor. As a result, this method better allows the subjects (not the researchers) to impart their own understanding about the nature and scope of their labor supply choices. In contrast to more opaque quantitative analysis, these narratives more easily convey the beneficial and perverse outcomes that can result from spontaneous orders (Martin and Storr 2008; Dugger 1996).
Field interviews reveal that subjects perceive their alternatives, including agricultural work and street vending, as less desirable when compared to sweatshop labor. Non-monetary benefits are an important part of this appraisal. The interviews provide information about the margins along which subjects’ compensation improves and identifies factory employment as one means of improving intergenerational mobility, educational attainment, and improved economic opportunities for women. This analysis suggests two implications for sweatshop-related policy and economic development more broadly.
First, policies for developing countries that are based on legal standards in developed countries can undermine development because they differ from the actual community’s relevant opportunity sets.11 Hall and Leeson (2007) investigate the claim that government-mandated labor standards currently in place in developed countries are appropriate for developing economies. Finding that the United States was much wealthier at the time the country adopted different labor regulations, they conclude that imposing similar labor standards on developing countries involves an income tradeoff inappropriate for their current level of wealth. Our research similarly finds that sweatshop labor policy based on Western standards may be inappropriate because workers in developing countries have fewer opportunities and are less productive than workers in developed countries are.
Focusing on the actual opportunity sets of employees (and potential employees) in these countries can improve policy by recognizing a ‘do no harm’ approach to adopting labor standards. While labor regulations in the United States may be tolerable, requiring employers to meet certain wage levels, working conditions, or benefits programs can do substantial harm to poor workers by eliminating their most preferred employments. For example, Harrison and Scorse (2010) find large, negative effects on aggregate manufacturing employment from the imposition of a higher minimum wage motivated by the U.S. government’s threat to withdraw special tariff privileges because of human rights issues.
Second, our study of the employment opportunities of sweatshop workers is relevant to understanding the process of economic development more generally.12 Jeffrey Sachs (2005: 11) argues that factory manufacturing is an important step in developing a more prosperous economy, noting, “sweatshops are the first rung on the ladder out of extreme poverty.” In fact, we find that sweatshops are several rungs higher on the ladder. By showing that subjects are indeed choosing employment opportunities that improve their wellbeing and capabilities, our results are consistent with Sachs’ arguments about the benefits of sweatshop employment.
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