Are There Solutions for the Sweatshop Problem?

[pic 1]

Faculteit Economie en Bedrijfskunde

Academiejaar 2014-2015

Are There Solutions for the Sweatshops Problem?

Are There Solutions for the Sweatshop Problem?

0.             Introduction

This paper discusses and analyses the solutions on the sweatshop problem. It is generally acknowledged that there still exist factories where the employees have to work in bad working conditions.
The first section deals with the link to Tim Harford’s book ‘The Undercover Economist’. In the second part four possible solutions on the sweatshop problem are illustrated. The third part provides real-life examples and the last section concludes this paper.

1.             The Undercover Economist

In his book The Undercover Economist, Tim Harford states that sweatshops aren’t necessarily bad because having something is better than having nothing. Furthermore, the multinationals create some form of wealth and introduce more economic activities (Harford, 2006). However the positive effects don’t compensate the negative ones and actions should be taken.

2.             Four possible solutions

A selection of recent studies has been read in the process of searching for possible solutions on the sweatshop problem. Signing a code of conduct, producing social labelled products, supporting anti-sweatshop activists and making people aware of the sweatshop problem are possible solutions. The explanation of these solutions will be given in this part of the paper.

2.1             Code of conduct

The first solution is that multinational companies should put a lot of effort in fighting the sweatshop problem. A lot of them are already a member of the ‘International Labor organization’ (ILO). “The ILO conventions include the core labour standards: freedom of association, the right of collective bargaining, equal pay for men and women, the minimum age of employment, etcetera” (Brown, Deardorff and Stern, 2004). The ILO standards are incorporated in the code of conduct of many multinational companies (Brown, Deardorff and Stern, 2004).

The wages in multinational companies are higher due to the higher productivity, the production scale and the better production. We can conclude that workers in multinational companies work in better conditions than in local companies. Multinationals go to low-wage countries because in this way they can maintain their competitive advantage. According to the Hecksher-Ohlin theory multinationals will move labour-intensive products to countries where there is an abundance of the labour factor (Brown, Deardorff and Stern, 2004).

2.2             Anti-sweatshop activists

Anti-sweatshop activists increased their efforts to improve working conditions and raise wages for workers in developing countries. The campaigns took many different forms: direct pressure to change legislation in developing countries, pressure on firms and newspaper campaigns. The combined effects of the minimum wage legislation and the anti-sweatshop campaigns led to a 50 percent increase in real wages. (Harrison and Scorse, 2006)

One question which naturally arises is how this could possibly be achieved without adverse consequences for employment.  Research by Harrison and Scorse, authors of the paper “Moving up or moving out” shows that increasing the minimum wage led to employment losses of about 10 percent for unskilled workers across the manufacturing sectors. Therefore you can conclude that the employment remained almost the same. (Harrison and Scorse, 2006)

2.3             Social labelled products

Another solution could be that consumer pay more for social labelled products. These products allow companies to improve their labour standards because the higher prices compensate the higher labour costs. A survey has proven that the majority of surveyed consumers is willing to pay more for these social labelled products (Hiscox and Smyth, 2006).

The biggest problem of this solution is that there isn’t any insurance that consumers would actually buy these products. Without this insurance, companies are reluctant to take a risk. However, field experiments have given us new evidence on dramatically increased sales when products were labelled as “produced under good labour conditions”.
Switching to labelled goods wouldn’t only be good for sweatshop prevention but also for the profits of the companies. “When this system is used by a large number of firms, it has the potential of improving working conditions in developing countries without slowing down trade, investment and growth”  (Hiscox and Smyth, 2006).