They don’t call economics the dismal science for nothing. A study of Ethiopian workers released last week by the US National Bureau of Economics Research found low-wage factories—often known as sweatshops— were dangerous, undesirable and paid even less than self-employment in the informal sector. But, the researchers concluded, countries were still better off than not having those jobs at all.
By encouraging mass hiring in the economy, even low-wage factories could lift everyone’s wages. Fewer desperate workers competing for jobs meant employers must pay more for labor, argue economists Chris Blattman of the University of Chicago and Stefan Dercon of Oxford University in the latest study. But countries could ensure those factories treated their workers more fairly, and remove barriers for entrepreneurs building their businesses.
“More manufacturing firms is a good thing,” said Blattman in an interview. “This is going to happen. This is the development process in most countries. We shouldn’t sugar coat it.”
Ultimately, he and Dercon say in their study that despite the problems with sweatshops, “we do not conclude that Africa needs fewer low-wage manufacturers.”
The researchers started their experiment back in 2010. The recruited 1,000 Ethiopians who agreed to report their incomes, health, and happiness over 13 months, and then split them into three groups. One group received $300 and entrepreneurship training, a second was offered jobs at several low-wage factories, and a third group received nothing. The researchers wanted to know if it was best to encourage more entrepreneurship, more manufacturing jobs, or to let people pursue jobs on their own.
It’s a policy challenge facing many poor countries as they emerge as “China’s successors,” providing low-cost manufacturing for wealthier parts of the world. Their options are bleak. “We were comparing just a whole bunch of bad choices,” says Blattman.
The study’s results suggested bad factory jobs were better than no jobs for individuals—though not by much. The group given jobs at factories earned about 11 cents per hour, slightly more than the control group who received no assistance. Entrepreneurship, on the other hand, was a win. Giving people cash for a businesses such as small shops or informal ventures raised incomes an average of 30% over the other options.
Factories, on the other hand, offered a reliable paycheck, but doubled the likelihood of injury and raised financial anxiety compared to self-employment. Informal incomes were more sporadic, but higher-paying.
“All our funding proposals before the study suggested that we expected the sweatshops to pay higher and more steady wages than people’s bad alternatives in the informal sector,” wrote Blattman. “But in this case I was wrong.”
Why take a factory job at all? Blattman says factories act as a kind of safety net for workers who need a steady source of temporary income, and for those who have few options in the informal sector. Most workers tended to flee factories as soon as better opportunities arose: 77% of people in the study left factory jobs within a year.
The character of industrial jobs has remained fairly stable over the last two centuries. But what’s different is the inhumane conditions that accompanied the rise of the global economy are no longer considered acceptable, or easily justified, in many countries. Blattman says a minimum standard for workers’ rights and wages, informing workers of risks, and pushing manufacturing firms to pay more while becoming more efficient, could fuel industrialization without the human misery traditionally associated with sweatshops.
There is a precedent. In the 1990s, an anti-sweatshop campaign in Indonesia raised wages, forced closure of smaller factories, and dampened profits in the sector. Happily for Indonesians, however, it had no effect on the overall number of jobs.
The image above was taken by Simon Davis (Department for International Development) and shared under Creative Commons license 2.0 on Wikicommons.