The Guardian tells us that those Girl Power t-shirts are made in a factory in Bangladesh. One that pays its workers only 42 pence an hour and isn’t this just disgusting and awful. Well, yes, actually, it is. That Bangladesh is this poor is indeed disgusting and awful. That wages are this low there is something we’d all like to change. But that’s just what wages are in Bangladesh, low, because it’s a poor place. Poor places have low wages, low wages mean a place is poor, that’s just how this economics stuff works.
What we actually want to know is what is it that raises wages? The answer being that we buy stuff made by poor people in poor countries.[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Charity “girl power” T-shirts sold in the UK are made at a Bangladeshi factory where more than 100 impoverished workers claim to have been sacked after striking in protest at low wages, it can be revealed. The £28 garments are sold online by F=, which claims to be “all about inspiring and empowering girls”, with £10 from each T-shirt donated to Worldreader, a charity that supplies digital books to poverty-stricken children in Africa. Television presenter Holly Willoughby recently reposted a 2017 picture of her and Spice Girl Emma Bunton wearing the T-shirts. The Guardian has established that the garments were made by Bangladeshi firm Dird Composite Textiles, where some workers earn as little as 42p an hour and complain of harassment. [/perfectpullquote]
42 p an hour isn’t bad for Bangladesh. £80 a month perhaps given the working week – and do note that’s the lowest rate in the factory, not the average which is rather higher.[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]The new minimum wage for the sector is 8,000 taka (£71.34) a month, half what the 16,000 campaigners had been demanding and well short of living wage estimates.[/perfectpullquote]
It’s above that new minimum wage too. So, why is that wage so low? Take it away Professor Krugman:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model — workers can earn more by moving into the industries in which you have a comparative advantage — simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them. Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn’t happen, it is a sign that something has gone wrong. In other words, my criticism of Michael Lind would baffle many non-economists.[/perfectpullquote] [perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.[/perfectpullquote]
This is just the way it works. And of course, we’d like those incomes to be higher. So, how do we go about doing that? Krugman again:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] In Praise of Cheap Labor
Bad jobs at bad wages are better than no jobs at all. The occasion was an op-ed piece I had written for the New York Times, in which I had pointed out that while wages and working conditions in the new export industries of the Third World are appalling, they are a big improvement over the “previous, less visible rural poverty.” I guess I should have expected that this comment would generate letters along the lines of, “Well, if you lose your comfortable position as an American professor you can always find another job–as long as you are 12 years old and willing to work for 40 cents an hour.” [/perfectpullquote] [perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Such moral outrage is common among the opponents of globalization–of the transfer of technology and capital from high-wage to low-wage countries and the resulting growth of labor-intensive Third World exports. These critics take it as a given that anyone with a good word for this process is naive or corrupt and, in either case, a de facto agent of global capital in its oppression of workers here and abroad. But matters are not that simple, and the moral lines are not that clear. In fact, let me make a counter-accusation: The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers. [/perfectpullquote]
In the absence of those £80 a month jobs making Girl Power t-shirts wages would be the £20 a month they are outside those Girl Power making t-shirt factories. And yes, that really is the level of wages in Bangladesh’s informal economy.
Want to make the word a better place? Buy things made by poor people in poor countries. Don’t want to make the world a better place? OK, whine then instead.