Wages

Lidl is doing sweatshop workers a favour

By employing them of course. Look, sweatshops are not places that we would like to work. The dimly lit, poorly maintained rooms where workers produce the clothes of the west are places which we would probably baulk at before stepping in, never mind working in, but these are the conditions of what many of the (mostly female) poor workers face up to and around 12 hours a day.

Therefore is is an outrage that the German owned supermarket, Lidl, is selling jeans at £5.99 for a pair, highlighted here by the Guardian. They could have only been produced by ruthless capitalist exploitation, and the pittance that the workers receive in return (“as little as 2p”) is of course an offence to all right minded people, i.e. Guardian readers.

Now, despite the fact that Guardian readers wouldn’t be seen dead in Lidl, and that they have forgotten about the UK’s poor who probably wouldn’t be all too squiffy about being offered lower priced goods, is this claim of exploitation true?

The notorious right wing, free market absolutist Paul Krugman once wrote an article “In praise of Cheap Labour” with the subtitle “Bad jobs at bad wages are better than no jobs at all.” Now, Krugman may have since called for better working conditions (globally, so unrealistically) after a garment factory in Bangladesh collapsed and killed around 1200 people, but the economic evidence is on Krugman’s original position.

There is plenty of evidence that ‘sweatshops’ benefit workers and local industries. To quote John Miller “Not to believe that demand curves are negatively sloped would be tantamount to declaring yourself an economic illiterate.” The demand here, being that of labour. If as many calls to raise wages are heeded, then workers loose their jobs. This is really bad when we consider “We find that workers perceive factory employment to provide more desirable compensation along several margins.” If sweatshops are so bad, then why are people so willing to work in them?

One reason might be that the wages are much better than they would be getting elsewhere. Foreign owned firms in particular pay higher wages (here and here) than the domestic competition, and the wages are higher than the national average in the majority of countries. Even the protested wages, which are deemed the worst of the worst by anti-sweatshop campaigners are generally above the national average, and in some countries are multiples of the averages. The wages then, are pretty good.

In the case of Bangladesh, which the article is attacking, protested wages at a 40 hour week are near 100% of the average earnings. In the UK, this is around £28,000; these people are doing well by comparison.

There is also the compensation packages that many firms offer their workers. They might seem like small things to us, but providing shoes for children, or a lift to work is a big thing. Since the workers tend to be women, getting them out of the house and gaining skills is crucial for them and the longer term health of the economy.

So, the Guardian may well be outraged that Lidl is offering poor people a good product made by poorer people who are earning good wages by comparison, but I’m afraid that for me it is pretty hard to be offended. We might not like sweatshops, but they are much better than the alternatives, and are making those who make our clothes better off too.

 

If McDonnell is discussing UBI, we really should be too

John Mcdonnell, the Shadow Chancellor, is giving a series of talks with high profile left wing economists and thinkers. At his talk on Tuesday, where among other things, he completely misunderstood Googles tax arrangements and mentioned Hayek of all people, he spoke of a universal basic income, the idea all citizens should get an amount to live off and that be that.

I know it is fashionable to have a go at the loss making Indy, but God Almighty this article was thrown together 5 minutes before closing time. There is no actual link to his exact quote, there is nothing of what a Labour policy would look like, and although it is believable because of what they were discussing, you could put “considering” after pretty much anything anyone has said. For instance, Jonathon is “considering” suicide after reading the Independent.

Anyway, since the McDonnell quote offers a way into discussing basic incomes, lets do that. The amount referenced by the Independent comes from the Royal Society for the encouragement of Arts, Manufactures and Commerce, which floated a figure of £3, 692 a year or £71 a week for people aged 25-65. This is also what an ASI report found, the difference being that they called their proposal a Negative Income Tax , while the RSAMC confusingly but for understandable reasons (Negative.. bit negative sounding) referred to their proposal as a UBI.

The actual difference between a NIT and UBI is that the former is based on the tax system in the form as a top up to income, or a minimum income if you earn nothing at all. As you earn more it is taxed back off you, like child benefit is, while a UBI is cash given, with then some ambiguity on where the money comes from to pay it. The work disincentives for a UBI are quite bad, because if you have just enough to live, then why not sit around all day. A NIT is a system in which you keep more money for each pound that you earn, with say a tapered withdrawal rate of 40p, so there is at some incentive to go out into the wider world, work and seek higher wages.

I like people working because you know, I am an evil capitalist who wants to crush the human soul it is how a modern economy works, and makes me and you richer. But also, unemployment has been very strongly associated with depression, lower levels of happiness, mental health issues, and poor self esteem, which we don’t like at all.

Since we probably should be thinking about the future of work, where low productivity labour will either be priced out by minimum wage increases or simply unable to provide enough to have an acceptable living standard, this is probably something we should think about.