Two Economists Discover Sweatshops Are Bad

While conditions in third world sweatshops are appalling, economic theory nonetheless supports the view that even these bad jobs can be “an escalator out of poverty,” because the jobs are better than the alternative and a booming industry will raise wages over time.  While it is great sport to criticize economists for being out of touch with reality at times, there is historical support for this theory.  The industrial revolution in Western Europe was based on horrible factory jobs, but in the end this turned out to be the road to prosperity for workers.

Economists Christopher  Blattman and Stefan Dercon set out to prove this was indeed the case in the third world today, and were surprised to find that the evidence did not support the theory:

We picked Ethiopia because its small export industry was beginning to boom. It offered a chance to see what effect these jobs would have at the earliest stages of industrialization. In addition to local exporters, many Chinese, Indian and European companies are setting up factories in Ethiopia, producing everything from clothing to flowers.

.  .  .

Since there were more qualified applicants than jobs, we had a perfect opportunity for a randomized trial. Five businesses — a beverage bottler, a garment factory, a shoemaker and two industrial greenhouse operations — agreed to hire qualified applicants by a lottery. We followed the 947 applicants who were and were not offered the job over a year, surveying them multiple times.

To our surprise, most people who got an industrial job soon changed their minds. A majority quit within the first months. They ended up doing what those who had not gotten the job offers did — going back to the family farm, taking a construction job or selling goods at the market.

Contrary to the expert predictions (and ours), quitting was a wise decision for most. The alternatives were not so bad after all: People who worked in agriculture or market selling earned about as much money as they could have at the factory, often with fewer hours and better conditions. We were amazed: By the end of a year only a third of the people who had landed an industrial job were still employed in the industrial sector at all.

Blattman and Dercon still believe that industrial employment over time will mean better and higher paying jobs, but they caution that their study suggests that the path is not smooth.    Read it all here.