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 raisedagainst sweatshops. According to their critics, sweatshops

are (1) exploitative, (2) coercive, and (3) harmful to

workers. In ‘‘The Ethical and Economic Case AgainstSweatshop Labor: A Critical Assessment,’’ Powell and

Zwolinski critique all three objections and thereby offer

what is arguably the most powerful defense of sweatshopsin the philosophical literature to date. This article demon-

strates that, whether or not unregulated sweatshops are

exploitative or coercive, they are, pace Powell and Zwo-linski, harmful to workers.

Keywords Sweatshops ! Minimum wage ! Labor law

Introduction

Three types of objections have been raised against sweat-shops. According to their critics, sweatshops are (1)

exploitative, (2) coercive, and (3) harmful to workers. In

‘‘The Ethical and Economic Case Against SweatshopLabor: A Critical Assessment,’’ Powell and Zwolinski

critique all three objections and thereby offer what isarguably the most powerful defense of sweatshops in the

philosophical literature to date.1 Our aim in this article is todemonstrate 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 sweat-

shops are harmful to workers because not only does this form

the core of Powell and Zwolinski’s argument againstsweatshop 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 beneficial, and sinceeven 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, asPowell and Zwolinski put it, ‘‘to the extent that there is

something morally objectionable with the low wages, dan-

gerous working conditions, long hours, and degradingtreatment 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 prin-ciples. To the contrary, our strategy will be to demonstrate

that even if we grant the truth of Powell and Zwolinski’s

economic and moral assumptions for the sake of argument,it nevertheless still does not follow that regulating sweat-

shops will be harmful to workers. Powell and Zwolinski’s

defense of sweatshops thus fails on its own terms.

The Case Against Sweatshop Regulation

Powell and Zwolinski’s argument against regulating

sweatshop labor can be reformulated as follows.

M. Coakley (&)Department of Government, London School of Economicsand Political Science, London, UKe-mail: m.p.coakley@lse.ac.uk

M. KatesProgram in Political Philosophy, Policy, and Law, Universityof Virginia, Charlottesville, VA, USAe-mail: michaelkates@virginia.edu

1 Powell and Zwolinski (2012). All subsequent parenthetical refer-ences are to this article.

123

J Bus Ethics

DOI 10.1007/s10551-012-1540-y

(1) Sweatshops are better for workers than the available

alternatives.

(2) Regulating sweatshop labor will lead to a decrease insweatshop employment.

(3) Therefore, regulating sweatshop labor will be harmful

to workers.

Now there are two initial points to emphasize about this

argument. The first is that the justification of premises (1)

and (2) hinge on contested economic and moral assump-tions. 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 minimumwage laws or other worker benefits will predictably lead to

a decrease in sweatshop employment as a result. The evi-

dence for this assumption is, however, mixed. Some criticsof sweatshops have argued that due to market imperfec-

tions (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’ voluntarychoice to accept sweatshop employment demonstrates that

sweatshops were the best alternative available to them’’

(p. 451). But there are grounds for being skeptical of thisassumption as well. One might deny that such a choice was

genuinely voluntary (Cohen 1983, 1987). Or one mightreject the moral force of economic exchanges made in

conditions of extreme desperation (Walzer 1983).

As stated above, however, we will not challenge eitherone of these assumptions here. Nor will we invoke any

novel ones of our own. Instead, our strategy in what fol-

lows will be to grant the truth of both of Powell andZwolinski’s 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 alter-natives 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. Inorder 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 regulatingsweatshops. Once (20) is made explicit, however, the argu-

ment against regulating sweatshop labor is far more difficult

to sustain. For not only must Powell and Zwolinski demon-

strate that regulating sweatshop labor will harm someworkers 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 sweatshoplabor via minimum wage laws or other worker benefits will

lead to a decrease in sweatshop employment. No attempt ismade, 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 stronggrounds for believing that premise (20) is false. The upshot

is that Powell and Zwolinski’s argument against the regu-

lation 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 wagepaid to workers. How ought such a proposal to be evalu-

ated? Here we simply follow Powell and Zwolinski, for

whom the ‘‘primary moral focus in this article will bewelfarist 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 variousproposed regulations of sweatshops affect the welfare of

actual and potential sweatshop workers’’ (pp. 450–451). In

order to assess the moral desirability of this proposal,therefore, we ought to compare its expected costs and

benefits in terms of human welfare.

Now, the certain and primary consequence of increasingsweatshop 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 effi-ciency effects and its share of the total cost, the price of the

goods that these workers produce might thereby increase.4

Second, profits 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

2 For the general debate over the relationship between minimumwage increases and employment levels, see, e.g., Card and Krueger(1994, 1997); for a range of developing world studies looking atactual regulatory compliance and the associated wage and employ-ment effects, see Strobl and Walsh (2000), Bell (1997), Maloney andNunez (2001), and Rama (1996).

3 For the purposes of this paper, we follow Feinberg (1987) inunderstanding harm as behavior that causes someone to be worse offthan they would otherwise have been. Hence if what we are doing willnot be worse for someone, or will even be better for them, then we arenot, properly speaking, harming them.4 Whether this will occur in practice is, of course, disputed. But wewill, once again, grant the truth of this assumption for the purposes ofour argument here.5 Note that, as these are societies characterized by large resourceunder-utilization in the form of un- and under-employment, the

M. Coakley, M. Kates

123

Fourth, and what Powell and Zwolinski attempt to establish,

if the price of the produced goods increases, and if consumersreduce consumption accordingly, then employment in

developing world sweatshops might decrease as well.

Overall, then, increasing the minimum wage paid toworkers has a number of consequences, both good and bad.

The first certain effect—additional worker income—is a

large welfare gain. The secondary consequences containthree potential costs—higher prices paid by developed world

consumers (or substitution to inferior goods), lower profitsfor sweatshop owners, and decreased sweatshop employ-

ment—and one potential benefit—increased non-sweatshop

employment. A basic welfare analysis of this proposal must,therefore, estimate the magnitude of each one of these con-

sequences and determine whether the gains—primary and

secondary—are expected to outweigh the losses.For that reason, demonstrating that one of the secondary

consequences—a decrease in the level of sweatshop

employment—is potentially negative establishes nothingabout the overall moral desirability of the proposal on wel-

farist grounds. Every social and economic practice has costs

as well as benefits. 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

wages…will raise the cost of labor and thus end up unem-ploying 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 mightmatter morally as well. As they briefly note: ‘‘It is theo-

retically possible that a large mandated wage increase

might be met with laying off only 1 % of workers, whereasthe other 99 % were made better off. Depending on one’s

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 frame-

work that they explicitly adopt—welfarism—this is exactly

the kind of change that ought to be regarded as highlymorally 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 Mexicanfirms would result in a price increase of between 2 and 6 %

for the garments they produced. In order to estimate the

welfare effects of doubling working wages, we need to

determine what would happen to demand if prices rose by2–6 %. 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 confi-dent 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, thatPowell and Zwolinski are correct and that there would be,

say, a 4 % decrease in consumer spending. The primaryconsequence 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 effectis, 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; thishas the potential to increase wages or employment there. It

is, therefore, unclear whether the overall level of unem-

ployment 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 employmenteffects overall. More importantly, however, it does not

follow that in those cases where there are negative

employment effects, a basic welfarist analysis would judgethem as outweighing the gains from workers having mas-

sively higher incomes.

The only other study of the developing world employ-ment 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 increasein 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 onlyis the 100 % increase in workers’ income morally signifi-

cant but so too is the question of whether the factories

simply relocated to other countries and thereby increasedemployment 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, ifthe 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 developingworld employment overall; such a decision might instead

Footnote 5 continuedmultiplier effect here might be quite large. For a recent summary ofthe vast literature on the link between multipliers and idle resources,see Parker (2011).

6 Indeed, this might actually overestimate the loss of employment tothe developing world in general since consumers might substitute intoother goods produced there. If the price of garments made in Mexicogoes up 4 %, then those consumers who no longer buy them mightbuy from other countries in the developing world, thereby partyoffsetting the Mexican sweatshop employment loss. A 4 % decreasein sweatshop employment thus represents the upper bound of theoverall potential developing world sweatshop employment effectgiven the price elasticity assumed.

The Ethical and Economic Case

123

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 % moreexpensive 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 esti-mates, the reader would at least have a sense of why they

were opposed to such laws on welfarist grounds and/or whythey 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 sweatshopemployment instead. Powell and Zwolinski do not, there-

fore, demonstrate that increasing sweatshop wages will

result in a decrease in welfare overall. Nor do the specificstudies they cite demonstrate this conclusion either.

Furthermore, there are strong grounds for believing that

raising sweatshop worker wages would normally beexpected to lead to a large welfare gain. The reasons are

twofold. First, the beneficiaries 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 ofconsumers and owners, then the first key factor in esti-

mating the magnitude of the welfare change of the income

shift from consumers and owners to workers is their rela-tive 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 wageincrease 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 ofexpected 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 percentageof the goods’ total price that can be attributable to worker

wages. If the percentage is small—and with sweatshops it

most likely would be—then both the increase in price and theconcomitant decrease in the good’s consumption are likely to

be small as well.

Thus, aside from the general product price elasticity,

there are two fundamental factors to consider in deter-mining 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 toowners 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 toowners and consumers, the larger the welfare gain from the

income transfer effects; and that the smaller the proportionof 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 wagepaid to workers are expected to be the highest in the fol-

lowing set of circumstances: where consumers and owners

are much more wealthy than workers and where workercompensation is a small part of the product price overall.

These are precisely the dominant characteristics of devel-

oping world export-oriented sweatshops.

Objections

Our argument thus far has been that even if Powell and

Zwolinski are correct that large mandated increases insweatshop 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 morallyundesirable 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 end—overall human welfare—is too

broad; and (B) that the means—‘‘regulation’’—is under-specified. 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 variousproposed regulations of sweatshops affect the welfare of

actual and potential sweatshop workers’’ (pp. 450–451). For

that reason, one might object that our argument misses themark. In order to determine the moral desirability of sweat-

shop regulation, we ought not to compare its costs and ben-

efits in terms of human welfare overall but rather in terms ofits impact on sweatshop workers alone.

There are two points in response. First, from a welfarist

point of view, the restriction to sweatshop workers alone isunwarranted. Any proposed regulation must instead be

7 These illustrative figures are taken from Harrison and Scorse (2010,p. 270), who note that Nike estimated in 1998 that developing worldfactory labor costs accounted for about 4 % of the overall productprice on a typical $90 shoe.8 For the sake of argument, we are once again accepting Powell andZwolinski’s claim that efficiency wages will not render this amutually beneficial change for all three groups.9 Note that Powell and Zwolinski are quite rightly not using moneyas a welfare proxy undifferentiated by income. Hence their welfareanalysis correctly focuses on the effects on those in the developingworld.

M. Coakley, M. Kates

123

evaluated on the basis of the expected costs and benefits for

all those who are affected by them. For if increasedsweatshop 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 cost—a decrease in sweatshop employment. This

is, of course, an important factor to consider. But no wel-fare analysis of the effects of regulating sweatshop labor is

at all complete without taking into account both the directand indirect welfare effects of increasing the minimum

wage paid to workers.

Second, even if we were to grant for the sake of argu-ment that it is indeed justified 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 largeincrease in worker welfare (via an increase in the minimum

wage) is outweighed by a decrease in sweatshop employ-

ment. 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 pat-tern of moral concern that establishes this conclusion does

not appear to have any obvious logic or justification. Thus

whether we focus on sweatshop workers alone, individualsin 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 jus-

tification for the above pattern of moral concern is in fact

priority for the worst off and, in particular, priority for thewelfare of the society’s least advantaged workers, i.e.,

those who as a result of the proposed increase in wages

may subsequently be unemployed.10 A revised version ofPowell and Zwolinski’s argument against sweatshop reg-

ulation could accordingly be reformulated as follows:

(1*) Sweatshops are better for the society’s least advan-

taged workers than the available alternatives.

(2*) Regulating sweatshop labor will lead to a decreasein sweatshop employment.

(3*) Therefore, regulating sweatshop labor will be harm-

ful to the society’s least advantaged workers.

If this argument can be sustained, then it would indeed

constitute a coherent critique of sweatshop regulation. Forthis construal of Powell and Zwolinski’s argument would

entail that a policy is morally undesirable just in case it

causes any deterioration in the situation of the worst offand thus irrespective of whether or not it represents a large

gain in human welfare overall.

We do not think that this is the moral position that

Powell and Zwolinski are advancing; nor is it one that wewould defend ourselves. For the sake of argument, how-

ever, let us assume that it is correct.11 Is this an argument

against sweatshop regulation that we should be willing toaccept? 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 reasonfor believing that increasing worker wages will lead to an

overall increase in employment in the developing worldsince 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 significantunderutilization in the local economy). Sweatshop regula-

tion that dramatically boosts worker wages is thus likely to

increase employment in the developing world overall evenif it decreases sweatshop employment at the margin.

Second, and perhaps more importantly, if the correct

pattern of moral concern holds that a policy is morallydesirable 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: spe-cifically, it is a very strong argument for massively

reducing the average working hours of individual sweat-

shop workers. For such regulation would be expected toreliably 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 upwith six people being employed part-time. One might, of

course, oppose such a policy on welfarist grounds—the

productive efficiency loss might mean that a generalincrease 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 welfareof the very worst off, and, in particular, those workers who

as a result of a proposed increase in wages may subse-

quently be unemployed, then one should strongly supportthe 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 thatregulating sweatshop labor is morally desirable in princi-

ple, that does not mean that the same is true in practice. For

10 We are grateful to an anonymous reviewer for suggesting thispossibility.

11 To see why there are very strong grounds for believing this moralposition to be false, consider the fact that it would imply, absurdly,that no amount of welfare increases to the vast majority of allsweatshop workers, however high, can ever justify any amount ofwelfare decreases to a tiny minority of them, however low. A100-fold increase in wages to 99 % of all sweatshops workers would,for example, be outweighed by the loss of employment to only 1 % ofthem. On its face, however, this seems fundamentally implausible.

The Ethical and Economic Case

123

there are a number of means by which such regulation can

be undertaken—individual-based activism, host-countrylabor laws, consumer country pressure, intergovernmental

standards, or unilateral or industry-wide international

company policies—and it might be the case that imple-menting them has unintended consequences or otherwise

does more harm than good.

This is a very important objection. But it is not incon-sistent with our argument at all. To the contrary, such an

objection presupposes an analysis exactly like our own. Forit 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 amoral framework for both assessing the costs and benefits

of different mechanisms and integrating any empirical

evidence we can gather to that end. Because of the sec-ondary employment effects from sweatshop workers

spending their increased income in the local economy, for

example, there is a prima facie case for preferring workerwage increases over other benefits that have no such

multiplier (such as safety gains). Or perhaps it is the latter

that can be more effectively and efficiently enforced. Thisis, of course, an empirical question. Our claim is simply

that it is in virtue of two prominent features of sweat-

shops—the relatively small percentage of product priceattributable to worker wages, and the large disparity in

income between workers on the one hand and consumers

and owners on the other—that sweatshop regulation islikely 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 willultimately depend on the circumstances at hand.

Conclusion

In ‘‘The Ethical and Economic Case Against SweatshopLabor: A Critical Assessment,’’ Powell and Zwolinski

conclude by stating that ‘‘no economic mechanisms have

been identified that would allow higher wages or betterworking conditions to be legally mandated without harm-

ing workers’’ (p. 470). But the converse is also true as well.

No economic mechanisms have been identified that wouldallow higher wages or better working conditions to be

legally mandated without benefiting workers either. The

reason is clear. Any legal change has costs and benefits. Abasic welfare analysis will identify which of the different

costs and benefits are morally significant and how they are

to be compared. Simply demonstrating that there is one

cost, namely, a decrease in sweatshop employment, does

nothing to establish that the change is morally undesirableoverall. Of course, that is not to deny the moral significance

of the question of whether increasing the minimum wage

paid to workers will thereby decrease employment insweatshops as a result. But the debate over sweatshops

cannot hinge entirely on this factor alone. The moral case

against sweatshops remains strong. The regulation ofsweatshop labor has the potential to greatly increase overall

human welfare in general, and the welfare of the globallyworst off in particular. Powell and Zwolinksi provide no

reason to think otherwise.

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