The Electric Commentary

Thursday, July 14, 2005

Labor Policy: Put your kids to work!

What prompted all of this discussion of labor policy all of a sudden? I received two e-mails over lunch asking my opinion of a certain labor policy. MDS referred me to this blog post about "sweat shops at sea:"

Take a used cruise ship, fill it with programmers, and park it three miles off the US coast so that it is no longer subject to US laws and regulations (like OSHA rules, overtime pay, etc). Pay the programmers less than $22,000 a year and make then work 10 hours a day. And then say that since the ship is so close to America, that it's really a way of keeping American jobs at home.

It sounds to me more like indentured servitude than a decent job opportunity.

  • Although the article says that each programmer will have their own room, what about spouses or children? I suspect they won't be welcome.
  • They say that the pay is $1,800 a month, they don't mention whether the employees will have to pay for things like laundry service, medical care, entertainment, or other amenities -- it could well be that most of their cash will go right back to the employer.
  • The article mentions 'shore leave' for employees, but how often, and how much leave? And what happens if an employee decides to quit, or has a family emergency, or has some other reason for needing to get off the boat?

The telling comment, it seems, is this one: "The pay is about three times what they earn in India today." That will make those jobs highly desirable to Indians if not Americans. And with the ship parked so close to the US/Mexico border, it doesn't take much imagination to cook up a scenario where you import a boatload of programmers through Mexico, put them on the ship in international waters, and bingo, you have a totally unregulated sweatshop where the inhabitants cannot get away without permission unless they're willing to risk a three-mile ocean swim.

It's a situation bursting with the potential for abuse.

I have absolutely no problem with this plan, other than the fact that it probably won't work. First of all, if you are engaging in the act of computer programming, you are not in a sweat shop. Secondly, as the economist in me always says, if someone can do something cheaper than you can, let them do it. Find something more useful for yourself. However, while I applaud this company's creativity, and their skirting of the law, I just don't think it's practical. They say themselves:

The pay is about three times what they earn in India today.


So how exactly are the planning to keep their prices competitive if they're paying such high wages? What would prevent an Indian company from simply undercutting them?

Professor Drezner has similar reservations, and makes a few additional points:

There are a lot of things that don't make sense to me about this business model:

1) How can they pay three times the Indian wage but maintain similar pricing levels?

2) How are cultural differences eliminated by moving developing country programmers from their country of origin to a ship three miles off the U.S.?

3) Is evading U.S. regulatory strictures (payroll taxes, health insurance, labor standards) the only thing that makes this venture even close to profitable? If so, what does that say about U.S. regulations?

Indeed. I was already in the labor mind set today because Virginia Postrel has an excellent column in the NYT today on the subject of child labor, in which she states the following:

WHEN Americans think about child labor in poor countries, they rarely picture girls fetching water or boys tending livestock. Yet most of the 211 million children, ages 5 to 14, who work worldwide are not in factories. They are working in agriculture - from 92 percent in Vietnam to 63 percent in Guatemala - and most are not paid directly.

"Contrary to popular perception in high-income countries, most working children are employed by their parents rather than in manufacturing establishments or other forms of wage employment," two Dartmouth economists, Eric V. Edmonds and Nina Pavcnik, wrote in "Child Labor in the Global Economy," published in the Winter 2005 Journal of Economic Perspectives.


Most people who are offended by sweat shops don't properly consider the alternatives. They simply wish to close down the offending plant, or force it to offer higher wages and better conditions (of course if the plant does this the incentive to operate in an impoverished area disappears, leaving the surrounding population unemployed). How do you alleviate child labor then?

In a paper published in the Winter 2005 Journal of Human Resources, "Does Child Labor Decline With Improving Economic Status?," Professor Edmonds found that child labor dropped by nearly 30 percent over this five-year period. Rising incomes explain about 60 percent of that shift.

The effects were greatest for families escaping poverty. For those who crossed the official poverty line, earning enough to pay for adequate food and basic necessities, higher incomes accounted for 80 percent of the drop in child labor. In 1993, 58 percent of the population fell below the poverty line, compared with 33 percent five years later.

"Child labor does not appear to vary with per capita expenditure until households can meet their food needs, and it then declines dramatically," Professor Edmonds wrote. (His articles may be downloaded at www.dartmouth.edu/~eedmonds.)



As usual, economic growth is the key to alleviating a symptom of poverty. But encouraging policies to stimulate economic growth is just one of Postrel's suggestions. Read the whole thing to find out the rest.

It is unfortunate that there are so many places where children must toil in horrible conditions, but the alternative generally consists of toiling in a different set of horrible conditions.

Finally, Don Boudreaux at Cafe Hayek offers his thoughts on Postrel's column, and his co-blogger Russ Roberts makes as an interesting point about Wal-Mart:

There's a simple way to look at it. Wal-Mart doesn't offer health insurance or pay more than they do because they've found that they can attract enough workers with the pay package they currently offer. Period. For other companies, they have to offer health benefits to attract workers. They reason they offer health insurance isn't because they're socially responsible or kind or altruistic. They find that to compete for workers they have to offer it.

Paradoxically, Wal-Mart doesn't determine what it pays its workers or what benefits it offers any more than you can set the price of your house when you want to sell it. Suppose houses of similar quality and location sell for $500,000. You're free to set any price you want, but if you set a price of $1,000,000, you're going to wait a long time for a buyer. Oh, you might get a slight premium above $500,000 because you did such a nice job renovating your kitchen. Or maybe a little less if your taste in kitchen's is real different from most people's. You don't set the price of your house.



Update: That reminds me of this Simpsons episode, featuring this quote:

See that ship over there? They’re re-broadcasting Major League Baseball with implied oral consent, not express written consent—or so the legend goes.
-Homer Simpson

11 Comments:

  • They may not be sweatshops in the sense that we all know and love, but the software development industry is NOTORIOUS for having the worst white-collar (with a brown ring around it of course) work environments around. Look no further than the EA Spouse flap that flared up a few months ago for an example.

    In the end, it's still a voluntary choice to work for a firm, but I don't think that calling some of those operations "sweatshops" is rhetorically incorrect when viewed through the prism of American white-collar labor.

    By Anonymous Rashid Muhammad, at 1:50 PM  

  • I heard an interesting piece on NPR a few years ago about child labor on American farms. It was talking about a kid who lost his arm in a farming accident and how if either:

    a) a private employer had forced him to work on a farm or
    b) his parents had forced him to do something equally dangerous that wasn't involved in the family farm

    the adults responsible would have faced prison sentences. But because it was his parents and it was farm work, nothing happened to them.

    By Blogger MDS, at 1:54 PM  

  • By the way, to the point about health insurance, the history of its introduction as a benefit is interesting. Before say 1935, no one offered it. Businesses added it in the 30's and 40's not because it made any real sense to get health care from your employer, but to evade two sets of regulations:

    1. NRA-type and WWII-era wage controls, which limited wage rates. To attract good workers in the war years, non-cash benefits were needed since the cash portion of wages was fixed by law and regulation

    2. income taxes, which only starting to impact the non-rich in this era. Again, since income taxes did not apply to non-cash benefits, these became a preferred part of the compensation package.

    By Blogger Coyote, at 1:59 PM  

  • I liked the quote about how 50% of the applicants so far are from the US. Any software company that is built around a core group of American programmers who can't find a job on land that pays more than $9/hour is bound to be runaway success. Even if the pay is really good by Indian standards, I still don't think it would be enough to attract a lot of high-quality Indian programmers.

    By Blogger dhodge, at 2:53 PM  

  • The more I think about this, the more I think that it's actually a brilliant idea and maybe even the wave of the future. Think about how many goods and services are desired by people but denied them by their governments. I want cruise boats that provide abortions to women who live in countries where they're illegal, cruise boats that allow access to medical care that our FDA won't approve, cruise boats where drugs, gambling, and sex are not subject to government regulation, etc. I guess one man's sweatshop is another man's paradise.

    By Blogger MDS, at 4:33 PM  

  • cruise boats where drugs, gambling, and sex are not subject to government regulation, etc.

    You've been beaten to the punch on those...

    By Anonymous Rashid Muhammad, at 5:01 PM  

  • MDS, your last post reminded me of an interview I once heard on NPR's Fresh Air where the guest said "One man's sweat shop is another man's opportunity shop". The quote has always stuck in my head, partly because there is a some truth to it and partly because I wonder what an opportunity shop is. The guest was an author named William Langewiesche, who had just written a book about the international shipping industry.

    By Blogger dhodge, at 9:07 PM  

  • I'll have to read that. William Langewiesche is a great reporter.

    By Blogger MDS, at 9:33 AM  

  • I highly suspect that performing repetitive motions with limited breaks in a dusty room with the doors chained shut is a worse set of horrible conditions than working with your family in the field. It probably beats starving though.

    Yep, mds, I went to school with several American farm kids who performed strenuous labor and worked with heavy machinery every day. It made for a long day with school.

    This cruise ship thing just shows again that market forces prevail over regulation.

    By Anonymous Scott H, at 12:19 PM  

  • If that were the case, wouldn't computer programmers all buy farms?

    By Blogger PaulNoonan, at 12:33 PM  

  • Let's see, spindly, clumsy, poor eyesight and has lots of allergies... you're right, all programmers would be a perfect fit for a farm.

    Seriously, my comment was directed at the child labor comment about "the alternative generally consists of toiling in a different set of horrible conditions." I agree with your point that in poor areas children work hard regardless, I just doubt the conditions are quite as bad as the sweatshops. Apparently the families find that the income is worth the difference in conditions. Programmer's conditions (keyboards & screens) are basically similar wherever they are. 10 hours a day and $22K is just what you get for being a programmer with low market value for your skills.

    By Anonymous Scott H, at 2:20 PM  

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