Anti-sweatshop campaigns… work?
A new paper in the American Economic Review (that version is gated, but an ungated version is available here) from Ann Harrison and Jason Scorse reports that anti-sweatshop campaigns against manufacturers operating in Indonesia, notably Nike, have lead to large real wage increases for workers at targeted firms, and no significant increase in unemployment.
I have to say, this surprises me, but two of the explanations offered are compelling. First, it may be that wages were below equilibrium to begin with:
Wages in Indonesian TFA [textiles, footwear, and apparel] factories were very low prior to the onset of the anti-sweatshop campaigns; vendors for Nike were able to implement significant wage increases before even approaching the average wages across the Indonesian manufacturing sector.
Second, the companies targeted have brand power which gives them unusually high margins. For the non-economists in the audience – by some theories, being a powerful brand is a little bit like being a monopoly, because you’ve distinguished your products to the point where they’re not competing with generic alternatives.
Another key consideration is that many of the goods produced in Indonesia’s TFA sectors ultimately end up in expensive retail markets in the U.S. and the EU, where profit margins are relatively large, brand identity is paramount, and the firms clearly have the financial resources to improve labor conditions in their factories. In industries where more firms compete for market share, profit margins are smaller, and there is no brand recognition, anti-sweatshop campaigns may not be as effective.
So what was the mechanism? Apparently, activism increased compliance with minimum wage laws at the targeted companies. While increases in the minimum wage decreased employment overall – this is no surprise – the increased compliance with the minimum wage at a limited number of companies didn’t seem to reduce employment.
This part is just my own conjecture, but I’d assume that companies wouldn’t respond to these campaigns with wage increases unless they could afford the wage increases. That means there’s almost a built-in safety valve to avoid unemployment.
Not all the news was rosy, though:
While anti-sweatshop activism did not have additional adverse effects on employment within the TFA sector, it did lead to falling profits, reduced productivity growth, and plant closures for smaller exporters.
So taken together, this isn’t exactly bad news, but I’m not sure it’s widely applicable.
(Hat tip to Chris Blattman, as usual.)