Undercover Economist

The sweatshop dilemma

Every now and then, we remember that there are poor people in the world, and sweatshops become news. Jonah Peretti — the click-accumulating mastermind behind The Huffington Post and BuzzFeed — got his start in viral journalism 15 years ago by baiting Nike with a chain of witty emails requesting that his personalisable Nike trainers be emblazoned with the word SWEATSHOP.

Peretti having moved on to grander projects, the stage storyteller Mike Daisey picked up the baton, delivering a riveting monologue, “The Agony and Ecstasy of Steve Jobs”. It was about Daisey’s heroic unmasking of appalling working conditions in the Chinese factories that make iPads. It made compelling radio when This American Life aired it in 2012. It was even more compelling when This American Life retracted the episode shortly afterwards. Ira Glass, the show’s host, wrote: “Daisey lied to me.”

Economics, of course, offers a less click-worthy perspective. We shouldn’t be surprised if people making sneakers and iPads are paid badly to do tough, hazardous work, because they live in countries where such work is everywhere. And since people are moving away from grinding and precarious rural poverty to work in these grim factories, perhaps they see them as an improvement? The pithiest account of this view comes from the great 20th-century Cambridge economist Joan Robinson: “The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all.”

But while sweatshops are probably better than nothing, that doesn’t mean that nothing is better than sweatshops. Is there a plausible alternative to low-wage exploitation? Towards the end of her life, Robinson was attracted by Maoism. It’s not an approach that has fared well.

Other alternatives might. One idea is to promote better labour standards. That might help badly paid workers, or it might harm them by encouraging companies to avoid the reputational risk of producing in the poorest countries. Another possibility is to encourage small-scale entrepreneurial enterprises. They’re emotionally appealing — but are they merely a distracting Etsy-fication of the serious process of industrial development?

Researchers recently published a fascinating study that sheds new light on the sweatshop debate. Chris Blattman, a political scientist at the University of Chicago, and Stefan Dercon, the chief economist of the UK’s Department for International Development, decided to run an unusual experiment in Ethiopia after teaming up with five different employers.

Ethiopia is an example of early-stage industrialisation: still one of the poorest places in the world, it’s been liberalising its economy and growing very quickly for the past decade. International investors from Europe to Bangladesh are eyeing up Ethiopia as a possible base for low-wage manufacturing. But what are these tough jobs like for the workers who do them?

Here’s where the experiment comes in. Faced with a long queue of job applicants, all apparently equally qualified, an employer would normally choose arbitrarily. But guided by Blattman and Dercon, the Ethiopian employers randomly assigned applicants (typically young women) into one of three groups: those given a job offer, those turned down for a job, and a third category that we’ll discuss in a moment.

This randomisation allows for an unbiased comparison of people who got jobs and people who did not. What Blattman and Dercon found surprised them. Despite the fact that there were long queues for these factory jobs, people didn’t stick with them for long. By the end of the year, two-thirds of people offered a job had not just quit that particular job, but quit working in the industrial sector entirely.

“In terms of earnings, industrial jobs are not worse than the alternatives,” says Stefan Dercon. “We just thought they would be better.” The sweatshop jobs offer a mix of benefits and costs: steady work but low rates of pay, even by the standards of Ethiopian companies, and often hazardous conditions — for example, cotton fibres in the air frequently cause breathing problems. Young people often use them as a fallback — a good option to have if you’re low on funds, but not the sort of job you’d want to stick with. And the companies themselves seem content to cope with the turnover. This pattern — treating workers as interchangeable cogs in an industrial machine, to be replaced as they quit — was common 100 years ago in the UK and the US and seems to be a standard feature of this stage of industrialisation.

Could we do better? Perhaps. Remember the third group in the experiment? These were people who applied for a job and were told instead that they’d won a little lottery — $300 with no strings attached, plus five days of entrepreneurship training. The lottery winners, on average, managed to start a business or otherwise get themselves into a position where they were earning substantially more than people who’d been offered factory jobs. Industrialisation will always be a mainstay of a country’s economic development — but it’s worth remembering that with finance and advice, people can prosper in other ways too.

Overall, the experiment suggests that there’s something in the “sweatshop” criticism: these are hazardous, poorly paid jobs that people tend not to stick with for long. But there’s also something in the economists’ instinct that workers can take these apparently exploitative jobs and turn them to their advantage. In short, it’s complicated. Who knew?

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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