Economics
Sweatshop Workers & Domestic Policy Questions Discussion

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I need an explanation for this Economics question to help me study.

Please read case 1 and case 2 first.

Answe 4 eassy questions,

1. Which economic concepts can be used to better understand sweatshops and manufacturing in the developing world?

2. How could domestic policy improve outcomes for workers in sweatshops?

3. How could domestic policy harm workers in sweatshops?

4. Do international protests help or harm sweatshop workers?

Your response should not exceed 2500 words, and should be at least 2000 words.

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Sweatshops, Opportunity Costs, and Non-Monetary Compensation: Evidence from El Salvador1 By DAVID SKARBEK,* EMILY SKARBEK,† BRIAN SKARBEK,‡ and ERIN SKARBEK** ABSTRACT. Using evidence from field interviews, this article examines the alternative employment opportunities of thirty-one sweatshop factory workers in El Salvador and their perceptions about what types of non-monetary benefits they receive in their current employment. Interview subjects provide insights into the benefits of their own and peers’ employments, their next-best alternative employment, and other aspects of total compensation. We find that workers perceive factory employment to provide more desirable compensation along several margins. Introduction To better understand the role of “sweatshop” factories in developing countries, this article investigates how sweatshop employment compares to employees’ alternative employment opportunities and examines the non-monetary aspects of their compensation.2 Economists argue or assume that people reveal their preferences through their choices, suggesting that voluntary employment in a sweatshop indicates that it is the worker’s best available option given those available.3 This article examines the question for a small group of workers in El Salvador. We identify how favorably workers perceive their alternative employment opportunities and what role factory jobs play in their lives. The economic analysis of sweatshop factories usually refers only to contexts in which workers voluntarily choose their employment. *Duke University, Department of Political Science, david.skarbek@duke.edu †San Jose State University, Department of Economics, emilyskarbek@gmail.com ‡Skarbek Law Firm, brianskarbek@gmail.com **Pierce & Shearer LLP, erin@pierceshearer.com American Journal of Economics and Sociology, Vol. 71, No. 3 (July, 2012). © 2012 American Journal of Economics and Sociology, Inc. 540 The American Journal of Economics and Sociology Slavery, human trafficking, and employer theft of passports, for example, are a distinctly different issue and outside of the scope of this article.4 A worker’s productivity determines the upper bound on total compensation, and sweatshops often provide capital and technology that make workers more productive than they would be in other local jobs. In fact, sweatshop pay often compares favorably with the country’s standard of living. Powell and Skarbek (2006) examine wage estimates given by sweatshop critics and find that in nine out of eleven countries, sweatshop wages equal or exceed the country’s average income. For seventy-hour workweeks in Cambodia, Haiti, Nicaragua, and Honduras, sweatshop wages are double the national average income. In nine out of ten countries for which apparel-related sweatshop wages were available, employees earned wages equal to or greater than the country’s average national income by working fifty hour workweeks. Brown, Deardorff, and Stern (2003) document that multinational firms regularly pay higher wages and provide better working conditions than local firms. Aitken, Harrison, and Lipsey (1996) find that higher levels of foreign investment are associated with higher wages. Lipsey and Sjoholm (2001) find that foreign-owned firms pay higher wages than local firms do and that wages at local firms rise when foreign-owned firms are present. Apparel manufacturers and foreign employers often compensate their employees favorably compared to others’ earnings within their own country. Workers’ next best alternative employment opportunities determine the lower bound on wages. If strong competition for labor exists, there will be upward pressure on wages.5 Many critics decry large, international corporations opening up third-world factories or relatively wealthy Westerners purchasing products from these factories. However, as available alternatives increase in amount and quality, factory owners will pay their workers higher wages to retain them. Boycotts may block workers’ access to the productivity-enhancing capital and technology that foreign investment brings. In a recent interesting study, Harrison and Scorse (2010) find that anti-sweatshop campaigns that led to increases in the Indonesian minimum wage resulted in “large, negative effects . . . on aggregate manufacturing employment.” They attempt to identify the effect of anti-sweatshop Sweatshops, Opportunity Costs, and Compensation 541 activism on specific districts within Indonesia that produced textiles, footwear, and apparel (TFA) in the early 1990s based, in part, on who Nike employed as vendors in 2004. With this data, they find that “while anti-sweatshop activism did not have additional adverse effects on employment within the TFA sector, it did lead to falling profits, reduced productivity growth, and plant closures for smaller exporters.”6 Basu and Zarghamee (2009) model consumers’ choices to boycott products made by child labor and find that the boycott can actually lead to a rise rather than fall in child labor because of a backward bending household labor supply curve. The relevant alternative employment opportunities to sweatshop labor are often much worse. For example, journalist Nicholas Kristof (2009) reports on children who survive by picking through a “vast garbage dump” for plastic in Phnom Penh, Cambodia. These children, he reports, hope to someday work in a sweatshop instead of scavenging through the dangerous, dirty trash heaps (see also Kristof 1998). After the introduction of U.S. anti-child labor legislation in Congress in 1992, Bangladesh textile factories terminated the employment of an estimated fifty thousand illegal child laborers. UNICEF (Bellamy 1997: 60) reports that the children had little to no access to education and found employment in “stone-crushing, street hustling and prostitution—all of them more hazardous and exploitative than garment production.” For third-world workers, sweatshops often provide much better employments than their available alternatives. While Kristof (2009) provides useful anecdotal evidence, this article seeks to provide a more systematic examination of the alternative employment opportunities of sweatshop workers and factory compensation with evidence obtained through open-ended field interviews of thirty-one Salvadoran sweatshop workers. Heterodox approaches, such as the Marxist and Old Institutionalist literatures, provide alternative perspectives to mainstream economics on scarcity, choice, and wage labor. They emphasize historic-empirical analysis rather than formal modeling, dynamic and conflictual processes rather than static equilibrium, the possibility that economic forces lead to domination and power relationships, methodological collectivism, an interest in want-creation, and embrace a valuedirected inquiry (Dugger 1996). Feminist economics shares many of 542 The American Journal of Economics and Sociology these tenets and emphasizes the importance of unpaid, household labor and the role of race, gender, and class (Power 2004). Like these heterodox approaches, our study emphasizes a rich contextual analysis of social phenomena rather than a focus on formal modeling, allowing for examination of out-of equilibrium states of the social provisioning processes. Our study is an attempt to collect, document, and understand the qualitative, historical accounts of populations traditionally viewed as marginalized (low income earners and females). The majority of workers that we interviewed are female and all of them are low-skilled by developed country standards, and as such, our study focuses on the context of decisions made by a subordinated group and examines the interplay between market exchange and household production activities (Power 2004). In addition, we examine how factory work relates to Amartya Sen’s (1999) emphasis on the importance of obtaining “capabilities” such as education. All of the aforementioned factors typically occupy the forefront of heterodox studies of labor and development and auxiliary positions in similar mainstream studies. Perhaps most clearly consistent with these heterodox approaches, our research methodology explicitly recognizes that people give meaning to their economic activities, and these provide a necessary foundation for understanding the social provisioning process. As Dugger (1996: 40) explains about the people engaged in the social provisioning process, “[t]hose other people can talk. They can write. They can tell their own stories. What economists need to do is learn how to ask questions and learn how to listen to people’s stories.” By adopting an open-ended interview research method, we attempt to access the meanings that people give to their jobs and make these central to understanding factory work and labor supply decisions. Despite the similarities with heterodox literatures, this article remains primarily within the mainstream economics perspective. We focus on the traditional neoclassical assumptions of preference revelation through choice and use methodological individualist economic theory to inform our survey instrument and research design. Central to our study is the continuance with the assumption that scarcity is “a part of the human condition” rather than “part and parcel of life within our advanced capitalist economy” because of want-creation by adver- Sweatshops, Opportunity Costs, and Compensation 543 tisers and corporations (Matthaei 1984, 91). While we recognize that heterodox theories of wages and labor may not agree with the concept of scarcity as an ever-present relationship between desirability and availability within real resource constraints, we maintain that the opportunity cost concept is important and fruitful for understanding sweatshop labor decisions.7 Methodology This research focuses on El Salvadoran factories because journalists and social activists have frequently criticized its sweatshops and the National Labor Committee has actively been involved in workers’ rights issues there since the 1980s.8 At an Adidas shareholders meeting in November 2008, Sonia Lara Campos (2008), an activist with the National Labor Committee in Central America, criticizes Salvadoran apparel manufacturers and asks, “[h]ow long do the workers of Adidas have to wait until they receive a dignified wage?” Campos (2008) reports that worker compensation barely provides for the food needs of a family of four and is insufficient for a broader basket of necessities. Through an in-depth examination of subjects’ alternatives to and compensation in Salvadoran sweatshops, we bring evidence to bear on these claims as well as provide evidence regarding the role of sweatshops in the lives of El Salvadorian wage earners. We collected these data in early 2009 from subjects employed in two factories in El Salvador: the Partex Apparel Group and Royal Textiles. These factories produce garments for organizations such as Adidas and the United States military. Interviewing subjects at two factories is not necessarily representative of factory work in general or representative of El Salvadoran factories in particular, but this method provides two advantages. First, to the extent that this sample contradicts critics’ claims, it reveals that there is greater heterogeneity in the welfare implications of factory labor than is commonly implied in popular and public policy discussions of sweatshops. Second, these interviews provide a rich description of how factory employment affects a particular group of subjects in a developing country, so they provide a more accurate and complete depiction of sweatshop work than relying only on wage data.9 544 The American Journal of Economics and Sociology Our study focuses on the subjects’ perspectives of their environment, employment, and their relevant opportunities. In total, we conducted and recorded thirty-one interviews with employees.10 The sample consists of approximately fifty-five percent females, and subjects are, on average, twenty-nine years old. Interview subjects at both factories work as either cutters of material or machinists who sew the products. All potential interview subjects work in these same two jobs. We used both purposive and random sampling methods for selecting interview subjects; we asked for volunteers and we randomly selected subjects from alternating project groups based on where they were sitting in the factory. The only difference in responses between these two groups is that a greater percentage of the subjects who volunteered rather than being randomly selected reported payment related problems, thirty-eight percent versus seventeen percent. This may reflect a greater desire to voice concerns on the part of volunteers than randomly selected subjects. Recognizing that the views of employers may also be of interest, we conducted interviews with managers of each factory. We conducted all interviews in private and with strict confidentiality. We communicated the confidentiality protocol to the subjects both verbally and in writing in both English and Spanish. We conducted the interviews with a local Spanish interpreter and recorded the entire process. A transcription service in the United States then retranslated and transcribed the recordings. This ensures that no miscommunications or incorrect translations might have occurred between the interviewer, subject, and translator. These measures provide assurance to interview subjects and help to elicit truthful responses and ensure accurate communication. Given that our central question concerns why subjects choose their current employment, how they value the non-monetary components of compensation, and how they perceive their relevant alternatives, qualitative research methods offer several advantages. First, in seeking to understand the non-monetary components of compensation, we necessarily are dealing with few quantitative variables. A worker’s assessment of the various non-monetary aspects of employment in a particular job is multifaceted. It is this diversity and subjectivity of non-monetary compensation that makes generating precise measurements of total compensation infeasible. As past Sweatshops, Opportunity Costs, and Compensation 545 research has focused on quantitative variables, such as wages and employment (Powell and Skarbek 2006; Harrison and Scorse 2010), this article hopes to provide a richer (though admittedly still imperfect) depiction of compensation by focusing on the non-monetary components. Second, the open-ended nature of an interview (as opposed to a survey instrument) invites respondents to supply their own interpretive framework to the question and have their perspective reflected in the answer. Survey instruments provide a list of possible responses, which allows researchers to increase sample size, but at the expense of restricting the set of responses to a range selected by the researchers. Smaller sample sizes result from using open-ended interviews, but this method provides more informative results. The aim of the research, in fact, was to identify alternatives that we as researchers do not know. Because of the open-ended interview process, there are not thirty-one answers to all of the questions. However, our data are consistent with the standards in the literature when using this research method. For example, a recent book (Esbenshade 2004) on sweatshops and monitoring in El Salvador relies on one hundred thirty nine personal interviews, but only eighteen of which are with Salvadoran factory workers. Given that the aim of our research is substantially narrower, we feel that thirty-one interviews is sufficiently large to provide evidence and is consistent with the literature. Our central research question is explicitly concerned with privileging the respondents’ narratives over the researcher’s prior understanding of possible responses (Weiss 1994). This technique attempts to overcome for the imposition of Western standards on the opportunity sets of workers in developing countries. For example, Bhagwati (2004) has argued that policymakers often develop advice and standards based on the tradeoffs faced by Westerners, not by the individuals living within developing economies (see also Hall and Leeson 2007). By allowing the interview subjects to frame and inform their responses with personal experience, the subjects provide greater insight about what perspectives and beliefs guide their action, and thereby avoid to some extent the preconceived reference points of the researcher (Denzau and North 1994) and provide evidence for policymakers about their actual tradeoffs. 546 The American Journal of Economics and Sociology Alternative Opportunities for Sweatshop Workers We designed our interview instrument to elicit responses about what subjects perceive to be their alternative employment opportunities and how they value non-monetary aspects of their employment. This might not always be obvious to an individual, so we asked a variety of questions about subjects’ previous employment, pay and working conditions, peers’ employment situations, and alternative opportunities. By examining together the answers from these various questions, the interviews provide a strong indication of how subjects perceive their employment relative to their alternatives. To begin, we report on a formal policy that affects compensation: El Salvador’s minimum wage. Table 1 identifies the governmentmandated daily minimum wage in different industries. Compared to other industries, clothing and manufacturing factory work has the third highest minimum wage. The subjects in these jobs benefit from the higher wage relative to workers in other industries. We asked subjects if pay at their current employment was sufficient to provide for their needs. Forty-eight percent of respondents answered in the affirmative with no qualifications (see Table 2). Forty-one percent answered in the affirmative, but noted hardships in Table 1 Salvadoran Daily Minimum Wage by Industry Business and Service Industry Industry (not clothing and manufacturing) Clothing and Manufacturing Factories Seasonal Agriculture/Coffee Harvesting Coffee Seasonal Agriculture/Sugar Mills Agriculture and Livestock Industry Harvesting Sugar Cane Harvesting Cotton Source: El Salvadorian Labor Code, Edition 62a, July 2008. $6.41 $6.27 $5.57 $4.34 $3.28 $3.16 $3.00 $2.78 $2.50 Sweatshops, Opportunity Costs, and Compensation 547 Table 2 Are you able to manage financially with what you earn? (n = 27) Yes, unqualified Yes, qualified No Managed with the assistance of family 13 11 1 2 Source: Interviews. doing so. One subject answered that her current pay was insufficient to meet her needs, and two subjects noted that they also rely on the contributions of family members. One subject explains that sweatshops provide important nonmonetary compensation: 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. While here at the factory, you do have some things. You can go to them for assistance and if they can help you, they do (Subject 10). Past research that examines only monetary compensation of factory workers will underestimate the benefits of factory employment by ignoring these many additional forms of compe ...
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Running Head: ECONOMICS QUESTIONS

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ECONOMICS QUESTIONS
Economics Questions
Question 1

In the understanding of sweatshops and manufacturing in the developing world, certain
economic concepts can be implemented. Economists argue that individuals reveal their
predispositions from their decisions outlining that volunteer service in a sweatshop
acknowledges that it is the worker's effective obtainable selection from the existing ones.
Economic analysis of sweatshop industries reveals the strategies in which workers willingly elect
their employment. A worker's productivity is a financial aspect that aids in the identification of
the upper bond on the entire compensation. Sweatshops usually offer technology and capital that
allows employees to be more productive than in other local jobs. The charges of sweatshops
provide a comparison with the country's standard of living; which, aids in the understanding of
this industry's functionality in developing countries. According to Powell and Skarbek (2006),
sweatshop critics wage analysis proved that roughly nine out of eleven states have wages equal
or slightly above the countries average income. Likewise, multinational firms usually pay higher
salaries and offer dynamic working surroundings than local industries. However, manufacturing
industries and foreign employers often compensate their employees remarkably compared to
others' earnings within the country.
Markedly, in the understanding of sweatshops and manufacturing in the developing
world, this research offers criticism on El Salvadoran factories. This aspect is considered since
the social activists and journalists were fond of diminishing sweatshops and National Labor
Committee engaged in worker's rights aspects since the 1980s. Campos (2008) criticizes
Salvadoran apparel manufactures and inquires the period in which the Adidas workers will wait

ECONOMICS QUESTIONS

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till they acquire a dignified wage. This researcher further proves that worker compensation is
little to offer the food needs of a family and cannot even aid in running external activities. The
role of sweatshops in El Salvadorian wage earners' lives provides a clear understanding of these
industries in the developing world. This research revealed that there is a higher heterogeneity in
the welfare insinuations of factory toil than implied in public policy deliberations of sweatshops.
Likewise, it outlined a rich analysis of the effects of factory employment on a specific collection
of issues in a developing country. This analysis revealed a clear and comprehensive
representation of sweatshop work than total dependence on wage data.
The conduction of interviews with employees and employers on subjects of environment,
employment, and opportunities implemented more in the understanding of sweatshops services.
This analysis involved a total of thirty-one interviews wi...

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