Exploiting the Poor

Greg Mankiw gets an email from a student. An excerpt:

Is it fair for countries to have a comparative advantage because they compensate their workers in a different manner than we Americans do?...I think it can go without saying that corporations such as Nike are paying wages to factory workers abroad that provide a standard of living that most Americans would describe as intolerable.

This reminds me of a conversation I had with a bunch of friends some years ago. We were talking about stuff when one of them said that such-and-such company might have used child labor in Asia for making its products.

"So?" was my response.

Every jaw dropped. "What do you mean so!?"

"So, what's the problem?" I replied.

"That's just wrong, using kids in factories."

"Did the people from such-and-such company force the kids to work in their factory? I don't think so. These young workers line up for a job because it's better than their other options in life."

"But... but what about going to school!?"

It was this question that made me realize that he, like many Westerners, had little knowledge about the brutal nature of life in the Third World. That guy actually assumed that these young laborers would go to school and later become respected professionals were it not for the sweat shops.

Opposition to child labor is considered to be an all-wise position. I'll offer my thoughts on two experiences to counter this mindset.

1. One of my uncles was the manager of a factory in Karachi, Pakistan. On a few occasions, my mother told him to take me there, so that she could have some peace of mind at home. I was 10 at the time.

My uncle took me to the factory, left me with the workers on the ground floor and went to his office. I was fascinated with the workings of the machinery. Various ingredients were mixed in a sealed-off room, then the end result was put in countless tiny cartons with a capacity of 250ml each. Then, the small cartons moved along a metal line of narrow width. Soon, they went into a chamber which miraculously attached straws to the cartons. Sometimes, the chamber missed a few packs. It was my "job" to pick up these neglected cartons and move them back.

The workers were amused by my presence. One of them was a young teenager. He worked side by side with his dad.

"Why do you work here?" I asked.

"Money for the family. We work indoors, so the job is good and safe." I gathered that he had many siblings who depended on his stable income. (CIA Factbook: Pakistan: 4 children born/woman.)

His dad said, "The people here are respectable." The manager paid them on time.

"What is your wage?" I asked.

"Four rupees an hour." That's US$0.08 per hour.

Now, imagine if some Western company such as Nike or Gap were to come in town and offer jobs at a higher wage. Should these companies, out of a sense of ethics, refuse to hire that kid? Would that kid be better off as a result?

2. My family would sometimes visit Lahore, Pakistan. There, throughout the day, we heard various sounds from the street. Vendors of pop corn, cotton candy, ice cream, and toys would pass by while using a whistle. My siblings whined hard enough for my dad to buy stuff for them practically every afternoon.

One day, we went out and found a young kid who was selling toys on his rolling cart. We bought many balloons and tops from him. He grinned widely when my dad gave him 100 rupees (~US$2).

Note the mercurial nature of that job. There was no steady income. The young seller suffered the atrocious heat on summer days and cursed at times when the clouds cried. Not to mention that handling a feeble cart on the road is particularly dangerous.

Wouldn't he have benefited from a stable job? Wouldn't he have been better off working for a Western company in a local factory?

You can look at the situation in this way: These kids, and often adults, don't have good choices in their lives. The have bad and worse options. Denying them the bad option because we, in the West, think that $0.25 an hour is awful is not looking at the reality. It's very likely that these kids would make $0.08 to $0.15 an hour in the absence of Western exploitation.

Also remember that these downtrodden folks wouldn't leave their current circumstances to be exploited if they were actually worse off as a result. Their very behavior should tell us that they prefer the exploitation.

Comments

[Mauro]

I think those guys think that there should be a law that forces companies like Nike to pay a minimum wage, even if they operate in third world. It is not that they want to take alternatives form the poor guys in Pakistan. They want to narrow the alternative of the multinational companies.
It is a total non-sense, all the same, but less obviously so.

[Isaac Schrödinger]

Assume that Nike hires 1000 workers in Asia for $0.25 an hour each. So, the total labor cost for Nike is $250.

If those guys enforced a minimum wage of, let's say, $2, then the labor cost for Nike would increase by 800% to $2000. It is likely, then, that Nike wouldn't keep all the 1000 workers. In addition, Nike might not hire as many workers in the near future.

The people who advocate the minimum wage, either nationally or internationally, don't realize that their policy directly hurts the very poor workers they are trying to help.

If it were possible to legislate higher wages, then we'd have solved the problem of poverty.

Here's a post from late 2004 in which I noted the negative consequences of a minimum wage law.

[IT jobs]

Thanks for posting this. i really enjoyed reading this.