Sweatshops, Opportunity Costs, and Non-Monetary Compensation Evidence from El Salvador by Emily Skarbek.pdf

  Sweatshops, Opportunity Costs, and Non-Monetary Compensation: Evidencefrom El Salvador  1 By   D  AVID  S KARBEK ,* E MILY   S KARBEK ,† B RIAN  S KARBEK ,‡ andE RIN  S KARBEK **  A BSTRACT Using evidence from field interviews, this article examinesthe alternative employment opportunities of thirty-one sweatshopfactory workers in El Salvador and their perceptions about what typesof non-monetary benefits they receive in their current employmentInterview subjects provide insights into the benefits of their own andpeers’ employments, their next-best alternative employment, andother aspects of total compensation We find that workers perceivefactory employment to provide more desirable compensation alongseveral margins Introduction  To better understand the role of “sweatshop” factories in developingcountries, this article investigates how sweatshop employment com-pares to employees’ alternative employment opportunities and exam-ines the non-monetary aspects of their compensation 2 Economistsargue or assume that people reveal their preferences through theirchoices, suggesting that voluntary employment in a sweatshop indi-cates 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 ElSalvador We identify how favorably workers perceive their alternativeemployment opportunities and what role factory jobs play in theirlives The economic analysis of sweatshop factories usually refers only to contexts in which workers voluntarily choose their employment *Duke University, Department of Political Science, davidskarbekdukeedu†San Jose State University, Department of Economics, emilyskarbekgmailcom‡Skarbek Law Firm, brianskarbekgmailcom**Pierce Shearer LLP, erinpierceshearercom  American Journal of Economics and Sociology, Vol 71, No 3 (July, 2012)© 2012 American Journal of Economics and Sociology, Inc  Slavery, human trafficking, and employer theft of passports, forexample, are a distinctly different issue and outside of the scope of this article 4  A worker’s productivity determines the upper bound on total com-pensation, and sweatshops often provide capital and technology thatmake workers more productive than they would be in other local jobsIn fact, sweatshop pay often compares favorably with the country’sstandard of living Powell and Skarbek (2006) examine wage estimatesgiven by sweatshop critics and find that in nine out of elevencountries, sweatshop wages equal or exceed the country’s averageincome For seventy-hour workweeks in Cambodia, Haiti, Nicaragua,and Honduras, sweatshop wages are double the national averageincome In nine out of ten countries for which apparel-related sweat-shop wages were available, employees earned wages equal to orgreater than the country’s average national income by working fifty hour workweeks Brown, Deardorff, and Stern (2003) document thatmultinational 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 withhigher wages Lipsey and Sjoholm (2001) find that foreign-ownedfirms pay higher wages than local firms do and that wages at localfirms rise when foreign-owned firms are present Apparel manufac-turers and foreign employers often compensate their employees favor-ably compared to others’ earnings within their own country Workers’ next best alternative employment opportunities determinethe lower bound on wages If strong competition for labor exists, there will be upward pressure on wages 5 Many critics decry large, interna-tional corporations opening up third-world factories or relatively  wealthy Westerners purchasing products from these factoriesHowever, as available alternatives increase in amount and quality,factory owners will pay their workers higher wages to retain themBoycotts may block workers’ access to the productivity-enhancingcapital and technology that foreign investment brings In a recentinteresting study, Harrison and Scorse (2010) find that anti-sweatshopcampaigns that led to increases in the Indonesian minimum wageresulted in “large, negative effects on aggregate manufacturingemployment” They attempt to identify the effect of anti-sweatshop540  The American Journal of Economics and Sociology   activism on specific districts within Indonesia that produced textiles,footwear, and apparel (TFA) in the early 1990s based, in part, on whoNike employed as vendors in 2004 With this data, they find that“while anti-sweatshop activism did not have additional adverse effectson employment within the TFA sector, it did lead to falling profits,reduced productivity growth, and plant closures for smaller export-ers” 6 Basu and Zarghamee (2009) model consumers’ choices toboycott products made by child labor and find that the boycott canactually lead to a rise rather than fall in child labor because of abackward bending household labor supply curveThe relevant alternative employment opportunities to sweatshoplabor are often much worse For example, journalist Nicholas Kristof (2009) reports on children who survive by picking through a “vastgarbage dump” for plastic in Phnom Penh, Cambodia These children,he reports, hope to someday work in a sweatshop instead of scav-enging through the dangerous, dirty trash heaps (see also Kristof 1998) After the introduction of US anti-child labor legislation inCongress in 1992, Bangladesh textile factories terminated the employ-ment of an estimated fifty thousand illegal child laborers UNICEF(Bellamy 1997: 60) reports that the children had little to no access toeducation and found employment in “stone-crushing, street hustlingand prostitution—all of them more hazardous and exploitative thangarment production” For third-world workers, sweatshops oftenprovide much better employments than their available alternatives While Kristof (2009) provides useful anecdotal evidence, this articleseeks to provide a more systematic examination of the alternativeemployment opportunities of sweatshop workers and factory com-pensation with evidence obtained through open-ended field inter- views of thirty-one Salvadoran sweatshop workersHeterodox approaches, such as the Marxist and Old Institutionalistliteratures, provide alternative perspectives to mainstream economicson scarcity, choice, and wage labor They emphasize historic-empiricalanalysis rather than formal modeling, dynamic and conflictual pro-cesses rather than static equilibrium, the possibility that economicforces lead to domination and power relationships, methodologicalcollectivism, an interest in want-creation, and embrace a value-directed inquiry (Dugger 1996) Feminist economics shares many of  Sweatshops, Opportunity Costs, and Compensation   541