J Bus Ethics DOI 10.

1007/s10551-012-1540-y

The Ethical and Economic Case for Sweatshop Regulation

Mathew Coakley Michael Kates

Received: 21 May 2012 / Accepted: 2 November 2012 Springer Science+Business Media Dordrecht 2012

Abstract Three types of objections have been raised against sweatshops. According to their critics, sweatshops are (1) exploitative, (2) coercive, and (3) harmful to workers. In The Ethical and Economic Case Against Sweatshop Labor: A Critical Assessment, Powell and Zwolinski critique all three objections and thereby offer what is arguably the most powerful defense of sweatshops in the philosophical literature to date. This article demonstrates that, whether or not unregulated sweatshops are exploitative or coercive, they are, pace Powell and Zwolinski, harmful to workers. Keywords Sweatshops Minimum wage Labor law

Introduction Three types of objections have been raised against sweatshops. According to their critics, sweatshops are (1) exploitative, (2) coercive, and (3) harmful to workers. In The Ethical and Economic Case Against Sweatshop Labor: A Critical Assessment, Powell and Zwolinski critique all three objections and thereby offer what is arguably the most powerful defense of sweatshops in the

philosophical literature to date.1 Our aim in this article is to demonstrate that, whether or not unregulated sweatshops are exploitative or coercive, they are, pace Powell and Zwolinski, harmful to workers. We focus here exclusively on the objection that sweatshops are harmful to workers because not only does this form the core of Powell and Zwolinskis argument against sweatshop regulation but it also seems the most obvious place for moral inquiry on this subject to start. Since even an exploitative transaction can be mutually benecial, and since even a coerced choice can be better than no choice at all, the case for or against sweatshops has typically begun with the question of whether or not they are harmful to workers. Or, as Powell and Zwolinski put it, to the extent that there is something morally objectionable with the low wages, dangerous working conditions, long hours, and degrading treatment typically associated with sweatshop labor, the most natural explanation for this is that these conditions are bad for the persons who suffer them (p. 451). Unlike other critics, however, our argument does not proceed from special (p. 450) economic or moral principles. To the contrary, our strategy will be to demonstrate that even if we grant the truth of Powell and Zwolinskis economic and moral assumptions for the sake of argument, it nevertheless still does not follow that regulating sweatshops will be harmful to workers. Powell and Zwolinskis defense of sweatshops thus fails on its own terms. The Case Against Sweatshop Regulation Powell and Zwolinskis argument against regulating sweatshop labor can be reformulated as follows.
1 Powell and Zwolinski (2012). All subsequent parenthetical references are to this article.

M. Coakley (&) Department of Government, London School of Economics and Political Science, London, UK e-mail: m.p.coakley@lse.ac.uk M. Kates Program in Political Philosophy, Policy, and Law, University of Virginia, Charlottesville, VA, USA e-mail: michaelkates@virginia.edu

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(1) (2) (3)

Sweatshops are better for workers than the available alternatives. Regulating sweatshop labor will lead to a decrease in sweatshop employment. Therefore, regulating sweatshop labor will be harmful to workers.

Now there are two initial points to emphasize about this argument. The rst is that the justication of premises (1) and (2) hinge on contested economic and moral assumptions. Indeed, it is here that much of the debate in the literature has focused. Premise (2), for example, assumes that increasing the price of sweatshop labor via minimum wage laws or other worker benets will predictably lead to a decrease in sweatshop employment as a result. The evidence for this assumption is, however, mixed. Some critics of sweatshops have argued that due to market imperfections (Arnold and Hartman 2005) or productivity gains from improved workplace conditions or remuneration (Pollin et al. 2004), regulating sweatshop labor will not in fact lead to a decrease in sweatshop employment overall.2 Premise (1), moreover, assumes that workers voluntary choice to accept sweatshop employment demonstrates that sweatshops were the best alternative available to them (p. 451). But there are grounds for being skeptical of this assumption as well. One might deny that such a choice was genuinely voluntary (Cohen 1983, 1987). Or one might reject the moral force of economic exchanges made in conditions of extreme desperation (Walzer 1983). As stated above, however, we will not challenge either one of these assumptions here. Nor will we invoke any novel ones of our own. Instead, our strategy in what follows will be to grant the truth of both of Powell and Zwolinskis economic and moral assumptions for the sake of argument and demonstrate that regulating sweatshop labor is morally desirable nevertheless. The second point to emphasize is that, as it currently stands, this argument is invalid. From the premise that (1) sweatshops are better for workers than the available alternatives and that (2) regulating sweatshop labor will lead to a decrease in sweatshop employment, it does not follow that (3) regulating sweatshop labor will be harmful to workers. In order for this argument to be valid, at least one additional premise is required: (20 ) regulating sweatshop labor will lead to greater overall harm to workers than not regulating sweatshops. Once (20 ) is made explicit, however, the argument against regulating sweatshop labor is far more difcult
For the general debate over the relationship between minimum wage increases and employment levels, see, e.g., Card and Krueger (1994, 1997); for a range of developing world studies looking at actual regulatory compliance and the associated wage and employment effects, see Strobl and Walsh (2000), Bell (1997), Maloney and Nunez (2001), and Rama (1996).
2

to sustain. For not only must Powell and Zwolinski demonstrate that regulating sweatshop labor will harm some workers by decreasing sweatshop employment, but they must also demonstrate that not regulating sweatshop labor will lead to less overall harm than regulating it will. Unfortunately, however, Powell and Zwolinski do not defend this comparative judgment at all. To the contrary, they simply argue that increasing the price of sweatshop labor via minimum wage laws or other worker benets will lead to a decrease in sweatshop employment. No attempt is made, however, to compare this expected harm with the expected harms that result from not regulating sweatshop labor. But, as we demonstrate below, there are very strong grounds for believing that premise (20 ) is false. The upshot is that Powell and Zwolinskis argument against the regulation of sweatshop labor is unsound.3

The Case for Sweatshop Regulation To see why premise (20 ) is false, consider a proposal to regulate sweatshop labor by increasing the minimum wage paid to workers. How ought such a proposal to be evaluated? Here we simply follow Powell and Zwolinski, for whom the primary moral focus in this article will be welfarist in nature. That is to say, the main question on which our moral evaluation of sweatshop labor will turn will be a question about how sweatshops and the various proposed regulations of sweatshops affect the welfare of actual and potential sweatshop workers (pp. 450451). In order to assess the moral desirability of this proposal, therefore, we ought to compare its expected costs and benets in terms of human welfare. Now, the certain and primary consequence of increasing sweatshop worker wages is, of course, that sweatshop workers will have more income. There is a range of potential secondary consequences too. First, depending on both efciency effects and its share of the total cost, the price of the goods that these workers produce might thereby increase.4 Second, prots for sweatshop owners might decrease. Third, given that sweatshop workers spend their additional income on local goods and services, the employment of developing world non-sweatshop workers might increase as a result.5
For the purposes of this paper, we follow Feinberg (1987) in understanding harm as behavior that causes someone to be worse off than they would otherwise have been. Hence if what we are doing will not be worse for someone, or will even be better for them, then we are not, properly speaking, harming them. 4 Whether this will occur in practice is, of course, disputed. But we will, once again, grant the truth of this assumption for the purposes of our argument here. 5 Note that, as these are societies characterized by large resource under-utilization in the form of un- and under-employment, the
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Fourth, and what Powell and Zwolinski attempt to establish, if the price of the produced goods increases, and if consumers reduce consumption accordingly, then employment in developing world sweatshops might decrease as well. Overall, then, increasing the minimum wage paid to workers has a number of consequences, both good and bad. The rst certain effectadditional worker incomeis a large welfare gain. The secondary consequences contain three potential costshigher prices paid by developed world consumers (or substitution to inferior goods), lower prots for sweatshop owners, and decreased sweatshop employmentand one potential benetincreased non-sweatshop employment. A basic welfare analysis of this proposal must, therefore, estimate the magnitude of each one of these consequences and determine whether the gainsprimary and secondaryare expected to outweigh the losses. For that reason, demonstrating that one of the secondary consequencesa decrease in the level of sweatshop employmentis potentially negative establishes nothing about the overall moral desirability of the proposal on welfarist grounds. Every social and economic practice has costs as well as benets. What matters is which is greater overall. Thus even if Powell and Zwolinski are correct in assuming that any nationwide law or regulation that mandates higher wageswill raise the cost of labor and thus end up unemploying some workers and moving them to less desirable alternatives (p. 457), it nevertheless still does not follow that such a proposal will be harmful to workers. In passing, Powell and Zwolinski do touch upon the fact that increasing the minimum wage paid to workers has a number of potential consequences and that these might matter morally as well. As they briey note: It is theoretically possible that a large mandated wage increase might be met with laying off only 1 % of workers, whereas the other 99 % were made better off. Depending on ones normative framework, it would then be at least possible to deem the unemployment effects a tolerable cost (p. 456). But this is very odd. According to the normative framework that they explicitly adoptwelfarismthis is exactly the kind of change that ought to be regarded as highly morally desirable (even more so once the potential increase in employment arising from additional worker spending on local goods and services is factored in as well). Consider, for example, the study of Pollin et al. (2004, discussed by Powell and Zwolinski) which found that a 100 % increase in garment worker wages in US and Mexican rms would result in a price increase of between 2 and 6 % for the garments they produced. In order to estimate the
Footnote 5 continued multiplier effect here might be quite large. For a recent summary of the vast literature on the link between multipliers and idle resources, see Parker (2011).

welfare effects of doubling working wages, we need to determine what would happen to demand if prices rose by 26 %. Assume, for example, that the median increase of 4 % were to occur and that this would lead to a decrease in consumer spending of x %. Whereas Pollin et al. are condent that the decrease would be close to or at zero, Powell and Zwolinski hold that it would in fact be greater. Let us assume for the sake of argument, however, that Powell and Zwolinski are correct and that there would be, say, a 4 % decrease in consumer spending. The primary consequence of such a change will thus be that 96 % of sweatshop workers have their income doubled and that 4 % of them lose their jobs.6 An estimate of the multiplier effect is, however, needed as well. If 96 % of workers in a sweatshop have their income doubled, then some of their additional income will be spent in the local economy; this has the potential to increase wages or employment there. It is, therefore, unclear whether the overall level of unemployment in the developing world would either rise of fall. The upshot is that even if Powell and Zwolinski are correct about the sweatshop employment effects, it nevertheless still does not follow that there are negative employment effects overall. More importantly, however, it does not follow that in those cases where there are negative employment effects, a basic welfarist analysis would judge them as outweighing the gains from workers having massively higher incomes. The only other study of the developing world employment effects of minimum wage laws that Powell and Zwolinski cite is that of Harrison and Scorse (2010). They estimate that in Indonesia a 100 percentage point increase in the real minimum wage would be accompanied by employment declines between 12 and 36 % (2010, p. 263). But, from the point of view of welfarism, not only is the 100 % increase in workers income morally signicant but so too is the question of whether the factories simply relocated to other countries and thereby increased employment there. For although Harrison and Scorse are explicit that they are only studying the effects of a 100 % minimum wage increase on employment in Indonesia, if the increased worker costs forced some factory owners to relocate production (or to set up new factories elsewhere), then that need not have a negative effect on developing world employment overall; such a decision might instead
6

Indeed, this might actually overestimate the loss of employment to the developing world in general since consumers might substitute into other goods produced there. If the price of garments made in Mexico goes up 4 %, then those consumers who no longer buy them might buy from other countries in the developing world, thereby party offsetting the Mexican sweatshop employment loss. A 4 % decrease in sweatshop employment thus represents the upper bound of the overall potential developing world sweatshop employment effect given the price elasticity assumed.

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be accompanied by a net increase in worker remuneration in those factories that remain. In order to determine the overall employment effects, therefore, we would need once again to estimate the price elasticity of consumers. If Nike shoes became 2 % more expensive because worker wages were raised by 50 %, then will the sale of those shoes decline?7 If so, by how much? Were Powell and Zwolinski to include such estimates, the reader would at least have a sense of why they were opposed to such laws on welfarist grounds and/or why they believed that a 50 % increase in worker wages and a potentially large increase in non-sweatshop employment was morally outweighed by a 2 % drop in sweatshop employment instead. Powell and Zwolinski do not, therefore, demonstrate that increasing sweatshop wages will result in a decrease in welfare overall. Nor do the specic studies they cite demonstrate this conclusion either. Furthermore, there are strong grounds for believing that raising sweatshop worker wages would normally be expected to lead to a large welfare gain. The reasons are twofold. First, the beneciaries of this change would all be extremely poor whereas the cost-bearers would primarily (but not necessarily exclusively) be drawn from the global rich. That is, if we assume that a minimum wage increase would lead to higher worker wages at the expense of consumers and owners, then the rst key factor in estimating the magnitude of the welfare change of the income shift from consumers and owners to workers is their relative wealth.8 The greater the difference in their income, the greater the expected welfare gain overall.9 The second factor to consider for any worker wage increase is the effect that this will have on employment in both the industry affected and the local economy as a whole. This would, once again, partly depend on the level of expected consumer price elasticity. Would a 5 % increase in price cause consumers to buy, say, 2 % less of the good or more? But it would also depend crucially on the percentage of the goods total price that can be attributable to worker wages. If the percentage is smalland with sweatshops it most likely would bethen both the increase in price and the concomitant decrease in the goods consumption are likely to be small as well.
7 These illustrative gures are taken from Harrison and Scorse (2010, p. 270), who note that Nike estimated in 1998 that developing world factory labor costs accounted for about 4 % of the overall product price on a typical $90 shoe. 8 For the sake of argument, we are once again accepting Powell and Zwolinskis claim that efciency wages will not render this a mutually benecial change for all three groups. 9 Note that Powell and Zwolinski are quite rightly not using money as a welfare proxy undifferentiated by income. Hence their welfare analysis correctly focuses on the effects on those in the developing world.

Thus, aside from the general product price elasticity, there are two fundamental factors to consider in determining whether an increase in the minimum wage paid to workers is likely to lead to an expected welfare gain overall. First, how poor are the workers compared to owners and consumers? Second, how much of the product price is attributable to worker wages? This in turn yields two predictions: that the poorer the workers compared to owners and consumers, the larger the welfare gain from the income transfer effects; and that the smaller the proportion of the cost attributable to worker wages, the smaller the welfare loss from direct employment effects. The upshot is that welfare gains from an increase in the minimum wage paid to workers are expected to be the highest in the following set of circumstances: where consumers and owners are much more wealthy than workers and where worker compensation is a small part of the product price overall. These are precisely the dominant characteristics of developing world export-oriented sweatshops.

Objections Our argument thus far has been that even if Powell and Zwolinski are correct that large mandated increases in sweatshop worker wages will be expected to lead to a decrease in sweatshop employment, it nevertheless still does not follow that such a change would be morally undesirable on welfarist grounds. To the contrary, there are strong grounds for believing that such regulation would lead to a large increase in human welfare overall. There are, however, two natural objections to this argument: (A) that the endoverall human welfareis too broad; and (B) that the meansregulationis underspecied. Let us consider each of these objections in turn. (A) Ends We have argued that regulating sweatshop labor can be expected to lead to an increase in human welfare overall. But, as Powell and Zwolinski maintain, the main question on which [their] moral evaluation of sweatshop labor will turn will be a question about how sweatshops and the various proposed regulations of sweatshops affect the welfare of actual and potential sweatshop workers (pp. 450451). For that reason, one might object that our argument misses the mark. In order to determine the moral desirability of sweatshop regulation, we ought not to compare its costs and benets in terms of human welfare overall but rather in terms of its impact on sweatshop workers alone. There are two points in response. First, from a welfarist point of view, the restriction to sweatshop workers alone is unwarranted. Any proposed regulation must instead be

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evaluated on the basis of the expected costs and benets for all those who are affected by them. For if increased sweatshop worker income leads to increased consumption of non-sweatshop labor, then that too must be included in the moral calculus. As we have demonstrated, however, Powell and Zwolinski simply argue for the existence of one particular costa decrease in sweatshop employment. This is, of course, an important factor to consider. But no welfare analysis of the effects of regulating sweatshop labor is at all complete without taking into account both the direct and indirect welfare effects of increasing the minimum wage paid to workers. Second, even if we were to grant for the sake of argument that it is indeed justied to focus on sweatshop workers alone, it nevertheless still does not follow that this objection is correct. For it is not at all clear why a large increase in worker welfare (via an increase in the minimum wage) is outweighed by a decrease in sweatshop employment. Or, to return to our previous example, why a 50 % increase in worker wages is outweighed by a 2 % decrease in sweatshop employment (assuming, unrealistically, no related increase in non-sweatshop employment). The pattern of moral concern that establishes this conclusion does not appear to have any obvious logic or justication. Thus whether we focus on sweatshop workers alone, individuals in the developing world in general, or all those affected by our actions, there are good reasons for expecting sweatshop regulation to be morally desirable on welfarist grounds. At this point, however, it might be argued that the justication for the above pattern of moral concern is in fact priority for the worst off and, in particular, priority for the welfare of the societys least advantaged workers, i.e., those who as a result of the proposed increase in wages may subsequently be unemployed.10 A revised version of Powell and Zwolinskis argument against sweatshop regulation could accordingly be reformulated as follows: (1*) (2*) (3*) Sweatshops are better for the societys least advantaged workers than the available alternatives. Regulating sweatshop labor will lead to a decrease in sweatshop employment. Therefore, regulating sweatshop labor will be harmful to the societys least advantaged workers.

We do not think that this is the moral position that Powell and Zwolinski are advancing; nor is it one that we would defend ourselves. For the sake of argument, however, let us assume that it is correct.11 Is this an argument against sweatshop regulation that we should be willing to accept? No. There are in fact two reasons for thinking that just the opposite is the case. First, as noted above, there is a strong prima facie reason for believing that increasing worker wages will lead to an overall increase in employment in the developing world since both the share of the product price from wages is small and the local employment multiplier from increased worker spending is likely to be large (due to signicant underutilization in the local economy). Sweatshop regulation that dramatically boosts worker wages is thus likely to increase employment in the developing world overall even if it decreases sweatshop employment at the margin. Second, and perhaps more importantly, if the correct pattern of moral concern holds that a policy is morally desirable to the extent that it reduces unemployment for workers in the developing world, then this is actually not an argument against sweatshop regulation but for it: specically, it is a very strong argument for massively reducing the average working hours of individual sweatshop workers. For such regulation would be expected to reliably produce a large increase in overall sweatshop employment levels. Instead of having three people do a particular process full-time, for example, we might end up with six people being employed part-time. One might, of course, oppose such a policy on welfarist groundsthe productive efciency loss might mean that a general increase in worker wages with working hours determined on a local basis was a better policy for increasing welfare overall. But if one is primarily concerned with the welfare of the very worst off, and, in particular, those workers who as a result of a proposed increase in wages may subsequently be unemployed, then one should strongly support the regulation and reduction of average sweatshop working hours as a way to boost sweatshop employment. (B) Means But even if there are strong grounds for believing that regulating sweatshop labor is morally desirable in principle, that does not mean that the same is true in practice. For
11

If this argument can be sustained, then it would indeed constitute a coherent critique of sweatshop regulation. For this construal of Powell and Zwolinskis argument would entail that a policy is morally undesirable just in case it causes any deterioration in the situation of the worst off and thus irrespective of whether or not it represents a large gain in human welfare overall.
10

We are grateful to an anonymous reviewer for suggesting this possibility.

To see why there are very strong grounds for believing this moral position to be false, consider the fact that it would imply, absurdly, that no amount of welfare increases to the vast majority of all sweatshop workers, however high, can ever justify any amount of welfare decreases to a tiny minority of them, however low. A 100-fold increase in wages to 99 % of all sweatshops workers would, for example, be outweighed by the loss of employment to only 1 % of them. On its face, however, this seems fundamentally implausible.

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there are a number of means by which such regulation can be undertakenindividual-based activism, host-country labor laws, consumer country pressure, intergovernmental standards, or unilateral or industry-wide international company policiesand it might be the case that implementing them has unintended consequences or otherwise does more harm than good. This is a very important objection. But it is not inconsistent with our argument at all. To the contrary, such an objection presupposes an analysis exactly like our own. For it is only by setting out in principle the different possible effects of sweatshop regulation and the accompanying impact in terms of human welfare that we thereby gain a moral framework for both assessing the costs and benets of different mechanisms and integrating any empirical evidence we can gather to that end. Because of the secondary employment effects from sweatshop workers spending their increased income in the local economy, for example, there is a prima facie case for preferring worker wage increases over other benets that have no such multiplier (such as safety gains). Or perhaps it is the latter that can be more effectively and efciently enforced. This is, of course, an empirical question. Our claim is simply that it is in virtue of two prominent features of sweatshopsthe relatively small percentage of product price attributable to worker wages, and the large disparity in income between workers on the one hand and consumers and owners on the otherthat sweatshop regulation is likely to lead to large welfare gains overall. It thus does not undermine the basic logic of our argument that the form of regulation most likely to be effective in this regard will ultimately depend on the circumstances at hand.

cost, namely, a decrease in sweatshop employment, does nothing to establish that the change is morally undesirable overall. Of course, that is not to deny the moral signicance of the question of whether increasing the minimum wage paid to workers will thereby decrease employment in sweatshops as a result. But the debate over sweatshops cannot hinge entirely on this factor alone. The moral case against sweatshops remains strong. The regulation of sweatshop labor has the potential to greatly increase overall human welfare in general, and the welfare of the globally worst off in particular. Powell and Zwolinksi provide no reason to think otherwise.

References
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Conclusion In The Ethical and Economic Case Against Sweatshop Labor: A Critical Assessment, Powell and Zwolinski conclude by stating that no economic mechanisms have been identied that would allow higher wages or better working conditions to be legally mandated without harming workers (p. 470). But the converse is also true as well. No economic mechanisms have been identied that would allow higher wages or better working conditions to be legally mandated without beneting workers either. The reason is clear. Any legal change has costs and benets. A basic welfare analysis will identify which of the different costs and benets are morally signicant and how they are to be compared. Simply demonstrating that there is one

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