Monthly Archives: May 2006

The Economics of Sweatshops

Often times, economists are asked about sweatshops. Individuals often assume that sweatshops are morally wrong and thus question why they exist. However, they are not morally wrong. In fact, sweatshops are actually one of the first positive signs of growth for those in developing countries.

Adam Smith taught us in The Wealth of Nations that two free individuals will only trade if they both perceive themselves as benefitting from the transaction. We know that a businessman would find it beneficial to pay workers a low wage. However, if the long hours of hard labor at low wages do not make the worker better off, why would they choose to work there?

It is hard to define a low wage. Americans often gasp at the wages for which those in developing countries are willing to work. A low wage by American standards does not necessarily deem it a low wage. One must analyze the wage by the standards in the country in which it is being paid. In the United States, $5 per hour would be deemed an unacceptable wage because it is below our minimum wage. Similarly, the citizens of the United States enjoy a higher standard of living. Those who are considered poor still drive cars and own televisions. However, in other countries this is not the case. In developing countries, the main concern is often food and shelter. When the standards of living are so low, the money can go a lot further.

We are often told horror stories of those in southeast Asia who are working for less than a dollar an hour to make tennis shoes. This often causes Marxist outrage. However, there is no need to worry. Individuals voluntarily choose to work in these environments. If the wages and conditions are so bad, why would anyone choose to work there? Often times they choose to do so because they have no better options. In other words, the job in a sweatshop is better than no job at all.

Sweatshops are also key signs of growth in developing nations. As more and more of these shops open, more and more individuals can find work. The competition for labor will continue to push wages higher. This increase in employment and wages causes the society as a whole to see in increase in the standard of living.

Individuals choose to work in sweatshops because it is better than the alternative.

Raising Revenue in Michigan

People Worse Than Us has a plan to raise revenue in the state of Michigan. This is a little glib, but it is a useful solution and is especially amusing for Michigan residents.