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International Business. Sweatshops: Pros and Cons Report

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Introduction

Sweatshops are workplaces run by unscrupulous employers who pay low wages to workers for long hours under unsafe and unhealthy conditions. For example, in a clothing sweatshop in California in the early 2000s, Asian women sewed for ten to twelve hours per day, six or seven days per week, in a dim and unventilated factory loft where the windows were sealed and the emergency doors locked. The workers had no pension or health-care benefits and were paid at a piece rate that fell far below the legal minimum wage. When the company went bankrupt, the owner sold off the inventory, locked out the workers without paying them, moved his machines in the middle of the night to another factory, and reopened under a different name.

The term “sweatshop” is derived from the “sweating system” of production and its use of “sweated labor.” At the heart of the sweating system are the contractors. A large company distributes its products to small contractors who profit from the difference between what they charge the company and what they spend on production. The work is low skilled and labor-intensive, so the contractors do best when their workers are paid the least. Workers employed under these conditions are said to be doing sweated labor. (Elliott and Freeman 2003)

Sweatshops are often used in the clothing industry because it is easy to separate higher and lower skilled jobs and contract out the lower skilled ones. Clothing companies can do their own designing, marketing, and cutting, and contract out sewing and finishing work. New contractors can start up easily; all they need is a few sewing machines in a rented apartment or factory loft located in a neighborhood where workers can be recruited.

Sweatshops make the most fashion-oriented clothing for women’s and girls because production has to be flexible, change quickly, and done in small batches. In less style-sensitive sectors men’s and boys’ wear, hosiery, and knit products there is less change and longer production runs, and clothing can be made competitively in large factories using advanced technology. Since their earliest days, sweatshops have relied on immigrant labor, usually women, who were desperate for work under any pay and conditions. (Singh and Zammit 2003) Sweatshops in New York City, for example, opened in Chinatown, the mostly Jewish Lower East Side, and Hispanic neighborhoods in the boroughs. Sweatshops in Seattle are near neighborhoods of Asian immigrants.

History of Sweatshops

The evolution of sweatshops in London and Paris two early and major centers of the garment industry followed the pattern in New York City. First, garment manufacturing was localized in a few districts: the Sentier of Paris and the Hackney, Haringey, Islington, the Tower Hamlets, and Westminster boroughs of London. Second, the sweatshops employed mostly immigrants, at first men but then primarily women, who had few job alternatives.

The source of immigrant workers changed over time. During the late nineteenth and twentieth century, most workers in the garment sweatshops of Paris were Germans and Belgians, then Polish and Russian Jews and, into the 2000s, Yugoslavs, Turks, Southeast Asians, Chinese and North African Jews. Eastern European Jews initially worked in London sweatshops, but most of these workers were replaced by Cypriots and Bengali immigrants. (Elliott and Freeman 2003)

Also, sweatshop conditions in the two cities were the result of roughly similar forces; in the nineteenth century, production shifted to lower-grade, ready-made clothing that could be made by less-skilled workers; skill requirements further declined with the introduction of the sewing machine and the separation of cutting and less skilled sewing work; frequent style changes, particularly in ready-made women’s wear, led to production in small lots and lower entry barriers to new entrepreneurs who sought contracts for sewing; and, as contractors competed among themselves, they tried to lower labor costs by reducing workers’ pay, increasing hours, and allowing working conditions to deteriorate.

In developing countries, clothing sweatshops tend to be widely dispersed geographically rather than concentrated in a few districts of major cities, and they often operate alongside sweatshops, some of which are very large, that produce toys, shoes (primarily athletic shoes), carpets, and athletic equipment (particularly baseballs and soccer balls), among other goods. Sweatshops of all types tend to have child labor, forced unpaid overtime, and widespread violations of workers’ freedom of association (i.e., the right to unionize). (Singh and Zammit 2003) The underlying cause of sweat-shops in developing nations whether in China, Southeast Asia, the Caribbean or India and Bangladesh is the intense cost-cutting done by contractors who compete among themselves for orders from larger contractors, major manufacturers, and retailers.

Clothing was not always produced with the sweating system. Throughout much of the nineteenth century, seamstresses made clothing by working long hours at home for low pay. They sewed precut fabric to make inexpensive clothes. Around the 1880s, clothing work shifted to contract shops that opened in the apartments of the recently arrived immigrants or in small, unsafe factories.

The spread of sweatshops was reversed in the United States in the years following a horrific fire in 1911 that destroyed the Triangle Shirtwaist Company, a women’s blouse manufacturer near Washington Square in New York City. The company employed five hundred workers in notoriously poor conditions. One hundred and forty-six workers, mostly young Jewish and Italian women, perished in the fire; many jumped out windows to their deaths because the building’s emergency exits were locked.

The Triangle fire made the public acutely aware of conditions in the clothing industry and led to pressure for closer regulation. The number of sweatshops gradually declined as unions organized and negotiated improved wages and conditions and as government regulations were stiffened (particularly under the 1938 Fair Labor Standards Act, which imposed a minimum wage and required overtime pay for work of more than forty hours per week). (Elliott and Freeman 2003)

Unionization and government regulation never completely eliminated clothing sweatshops, and many continued on the edges of the industry; small sweatshops were difficult to locate and could easily close and move to avoid union organizers and government inspectors. In the 1960s, sweatshops began to reappear in large numbers among the growing labor force of immigrants, and by the 1980s sweatshops were again “business as usual.” In the 1990s, atrocious conditions at a sweatshop once again shocked the public. (Gibson 2005)

In 1995, police raided a clandestine sweatshop in El Monte, California (outside Los Angeles), where seventy-two illegal Thai immigrants were sewing clothing in near-slavery in a locked and gated apartment complex. They sewed for up to seventeen hours per day and earned about sixty cents per hour. When they were not working, they slept ten to a room. The El Monte raid showed an unsuspecting public that sweatshop owners continued to prey on vulnerable immigrants and were ignoring the toughened workplace regulations. Under intense public pressure, the federal government worked with unions, industry representatives, and human rights organizations to attack the sweatshop problem.

Large companies pledged to learn more about their contractors and avoid sweat-shops. Congress proposed legislation that would make clothing manufacturers responsible for the conditions at their contractors. College students formed coalitions with labor unions and human rights organizations to organize consumer boycotts against clothing made in sweatshops. Despite these efforts, the old sweatshops continued and many new ones were opened.

In the early twenty-first century, about a third of garment manufacturers in the United States operate without licenses, keep no records, pay in cash, and pay no overtime. In New York City, about half of the garment manufacturers could be considered sweatshops because they repeatedly violate pay and workplace regulations. In Los Angeles, the nation’s new sweatshop center, around three-quarters of the clothing contractors pay less than the minimum wage and regularly violate health regulations.

The resurgence of sweatshops in the United States is a byproduct of globalization the lowering of trade barriers throughout the world and the widespread use of sweatshops to make garments in developing countries. American clothing companies must compete against producers elsewhere that can hire from a nearly endless supply of cheap labor. (Gibson 2005)

In the clothing industry, one sees a classic case of the “race to the bottom” that can come with unrestrained globalization. As trade barriers are reduced, clothing retailers face intensive competitive pressure and, squeezed for profits; demand cheaper goods from manufacturers. The manufacturers respond by paying less to contractors, and the contractors lower their piece rates and spend less money maintaining working conditions. Quite often, the contractors move abroad because the “race to the bottom” also happens worldwide. Developing countries outbid each other with concessions (for example, wages are set below the legal minimum, child labor and unhealthy work conditions are overlooked) to attract foreign investors.

Some Pros and Cons of Sweatshops

Sweatshops, commonly defined today as workplaces violating multiple labor laws, have always been a part of the economic landscape, as have attempted to eliminate sweatshop conditions. Public outrage following the 1911 Triangle Shirtwaist fire in New York, for example, led to creation of a Factory Investigating Commission and the passage of thirty-six laws reforming the state labor code. U.S. federal labor law is embodied in the Fair Labor Standards Act, originally passed in 1938. This act, too, responded to the prevalence of poor working conditions, calling for elimination of “conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers” (U.S. Department of Labor 2004, p. 1). Recent laws such as the U.S. Victims of Trafficking and Violence Protection Act of 2000 extend protection from exploitative practices.

Internationally, the 1998 United Nations Declaration on Fundamental Principles and Rights at Work provides the foundation for global labor standards. The Declaration defines four core types of labor standards: freedom from forced (trafficked) labor, nondiscrimination, abolition of child labor, and freedom of association/collective bargaining. Additional standards appear in the United Nations Anti-Trafficking Protocol, which recognizes that trafficked workers are victims of a crime and not illegal immigrants (United Nations 2000).

Despite these laws and agreements, violations of labor standards like those exposed by the Triangle fire persist and may well be increasing with globalization. In the United States sweatshop production is closely related to international flows of labor. Sectors such as agriculture, services, and clothing, in which immigrant labor constitutes larger shares of the workforce, are most likely to violate labor laws (Free the Slaves 2004).

While the extent of trade globalization as a new phenomenon is a subject of much debate (Sutcliffe and Glynn 1999), developing countries indisputably have only recently become major producers and exporters in such labor-intensive sectors as clothing and electronics. Companies in sectors that are very sensitive to wages and other costs of protecting workers may find relocation to low-wage countries a profitable response to global competitive pressure.

In developing countries, labor laws and enforcement are typically weak and labor is highly skewed toward the informal sector (Singh and Zammit 2003), defined by the International Labor Office (2002) as paid work not “recognized, regulated or protected by existing legal or regulatory frameworks” (p. 12). As a result, both wages and non-wage labor costs are lower than in rich countries. While labor costs are not always the only or even primary reason companies move out of developed countries (Chang 1998), for labor-intensive firms, moving offshore and subcontracting to informal producers clearly have become key elements of competitive strategy.

That sweatshop conditions still exist even in the United States is evidence that economic incentives for violating labor standards can be compelling to employers facing competitive threats. Opponents to sweatshops, recognizing the economic incentive to firms of low labor standards, have focused on raising the cost of using sweated labor. The International Confederation of Free Trade Unions and national trade unions emphasize ratification of and compliance with existing national and United Nations labor standards (International Confederation of Free Trade Unions 2006). Additional pressure comes from popular anti-sweatshop movements, often supported by trade unions that target consumers. By exposing sweatshop producers and encouraging consumer boycotts, these movements hope to raise the cost of exploitative labor practices.

While the scope of consumer-based economic punishment of sweatshop producers is limited (Gibson 2005; Elliott and Freeman 2003), empirical evidence suggests that consumers in at least some sectors are willing to pay higher prices to support better labor conditions (Pollin, Burns, and Heintz 2004). In clothing, popular movements have had considerable success in gaining acceptance of codes of conduct designed to raise standards. Many agreements and partnerships specifying in detail acceptable working conditions have emerged between producers and anti-sweatshop organizations representing consumers, both in the United States and in Europe.

Negotiated agreements and codes of conduct mark a dramatic step forward in recognizing basic human rights at work. A similar change is occurring in economic analysis of labor standards, with leading international institutions now linking protection of core labor standards to democracy and therefore to economic development (International Labor Office 2004; World Bank 2007).

Despite considerable progress, significant challenges remain. Government policy can have a strong impact on compliance, but mainly in large formal-sector firms (Weil 2004). Given the high level of informal labor and the difficulty of monitoring even formal-sector small producers scattered throughout the world, enforcement of laws and agreements continues to be weak. Countries themselves raise objections to externally imposed standards, fearing loss of sovereignty and competitiveness.

As one telling example, the U.S. government has ratified only two of the eight ILO core labor rights: It has not ratified the convention on the right to organize, the convention on equal remuneration, or the convention on discrimination. For poor countries, the economic consequences are not insubstantial. Some standards, such as eliminating child labor and improving health and safety, can be prohibitively expensive in competitive export sectors. Even developing countries strongly in favor of raising labor standards may argue (with much evidence to support their case) that economic growth rather than outside intervention is the best path to sustainable improvement in wages and working conditions (Singh and Zammit 2003). Where intervention reduces competitiveness, growth is retarded and the intervention becomes self-defeating.

In any case, even complete compliance with existing laws and codes of conduct would not settle disagreements over sweatshops. Current laws define core standards but not cash standards (Elliott and Freeman 2003), which would mandate wage minimums designed to establish a living wage, considered by many a critical component of working conditions. Thus, although frameworks for higher labor standards are evolving rapidly, serious limitations persist. A narrow definition of sweatshops excluding cash standards and the difficulty of monitoring working conditions in an increasingly globalized economy both pose daunting obstacles to further progress. Poor countries urgently require international support to finance the improved standards that all too often they desire but cannot afford.

Conclusion

The fight against sweatshops is never a simple matter; there are mixed motives and unexpected outcomes. For example, unions object to sweatshops because they are genuinely concerned about the welfare of sweated labor, but they also want to protect their own members’ jobs from low-wage competition even if this means ending the jobs of the working poor in other countries. Also, sweatshops can be evaluated from moral and economic perspectives.

Morally, it is easy to declare sweatshops unacceptable because they exploit and endanger workers. But from an economic perspective, many now argue that without sweatshops developing countries might not be able to compete with industrialized countries and achieve export growth. Working in a sweatshop may be the only alternative to subsistence farming, casual labor, prostitution, and unemployment. At least most sweatshops in other countries, it is argued, pay their workers above the poverty level and provide jobs for women who are otherwise shut out of manufacturing. And American consumers have greater purchasing power and a higher standard of living because of the availability of inexpensive imports.

The intense low-cost competition spurred by the opening of world markets is creating a resurgence of sweatshops in the United States. The response has been a large and energetic anti-sweatshop movement aimed at greater unionization, better government regulation, and consumer boycotts against goods produced by sweated labor. But despite the historical rise and fall and rise again of sweatshops in the clothing industry, their fundamental cause remains the same. The sweating system continues because contractors can profit by offering low wages and harsh conditions to workers in the United States and abroad who have no alternatives.

References

Chang, Ha-Joon. 1998. Globalization, Transnational Corporations and Economic Development: Can the Developing Countries Pursue Strategic Industrial Policy in a Globalizing World Economy? In Globalization and Progressive Economic Policy, ed. Dean Baker, Gerald Epstein, and Robert Pollin. Cambridge, U.K.: Cambridge University Press.

Elliott, Kimberly Ann, and Richard B. Freeman. 2003. Can Labor Standards Improve under Globalization? Washington, DC: Institute for International Economics.

Free the Slaves. 2004. Hidden Slaves: Forced Labor in the United States. Washington, DC: Free the Slaves, and Berkeley: University of California, Human Rights Center.

Gibson, William. 2005. Monitoring Labor Standards in a Macroeconomic Context. In Interactions in Analytical Political Economy: Theory, Policy, and Applications, ed. Mark Setterfield, 67–104. Armonk, NY: M.E. Sharpe.

International Confederation of Free Trade Unions. 2006. Internationally Recognized Core Labor Standards in the United States: Report for the WTO General Council Review of Trade Policies of the United States. Geneva, Switzerland: Author.

International Labor Office. 2002. Women and Men in the Informal Economy: A Statistical Picture. Geneva, Switzerland: Author.

International Labor Office. 2004. Organizing for Social Justice: Global Report under the Follow-up to the ILO Declaration on Fundamental Principles and Rights at Work. Geneva, Switzerland: Author.

Pollin, Robert, Justine Burns, and James Heintz. 2004. Global Apparel Production and Sweatshop Labor: Can Raising Retail Prices Finance Living Wages? Cambridge Journal of Economics 28 (2): 153–171.

Singh, Ajit, and Ann Zammit. 2003. Globalisation, Labor Standards and Economics Development. In The Handbook of Globalisation, ed. Jonathan Michie, 191–215. Cheltenham, U.K.: Edward Elgar.

Sutcliffe, Bob, and Andrew Glynn. 1999. Still Underwhelmed: Indicators of Globalization and Their Misinterpretation. Review of Radical Political Economics 31: 111–131.

U.S. Department of Labor. 2004. The Fair Labor Standards Act of 1938, as Amended (WH publication 1318). Washington, DC: Author.

United Nations. 2000. The Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children, Supplementing the United Nations Convention against Transnational Organized Crime. Geneva, Switzerland: Author.

Weil, David. 2004. Improving Labor Standards in the Apparel Industry: Can Government Make a Difference? Working Paper, Boston University/Harvard Center for Textile and Apparel Research.

World Bank. 2007. Global Economic Prospects: Managing the Next Wave of Globalization. Washington, DC: Author.

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