When we buy inexpensive shoes or t-shirts or plastic toys are we indirectly exploiting the poor who made the product for a relative pittance?

Is My Shirt a Sin?

Excerpt:

We must differentiate between low wages (low to us anyways) and forced, child, or slave labor. It is not a sin to pay someone in the Philippines a wage that seems absurdly small to Americans. Hourly compensation costs for employees in the manufacturing sector in the United States was $30.56 in 2007. In Mexico hourly compensation averaged $3.91; in the Philippines $1.37. This is much lower than compensation in the U.S. But then the U.S. compensates at a lower level than does Europe. Manufacturing workers in Germany, for example, average $50.73 an hour. In Norway they make $55.03. Part of the difference in compensation stems from purchasing power disparities (a buck goes farther in some countries than others) and varying levels of governmental regulation.

But by and large we are not bothered by Norwegians making a lot of money. We are, however, concerned about the poor in the Two-Thirds world. Probably every American would agree that workers in America are better off than workers in the Philippines. We would all like to see Filipinos live more comfortable lives. But just because $1.37 seems low to us, does not mean MNCs are unjust to pay Filipinos 4% of what U.S. manufacturing workers make.

For starters, workers in developing countries are less productive. This doesn’t mean they don’t work as hard or aren’t as bright. Productivity may be lower because the equipment is more primitive, proper training is less emphasized, management structures are less effective, or the infrastructure is less developed. Whatever the reason, the output of a worker in America is more than the output of workers in most other countries. Companies cannot survive by paying the same wage for less productivity.

More to the point, it can hardly be considered exploitative labor when, in many cases, people in other countries are eager for our manufacturing jobs. If we insist that MNCs pay workers in Mauritius what you can get in Grand Rapids, the MNCs will simply pull out of places like Mauritius. We will feel good about doing something for the poor (and perhaps for spending more money to buy American), but the workers in Mauritius (which is one of the better off African countries) now have less access to Western capital, one less opportunity for a job that by their standards is pretty decent. Good intentions, by themselves, count for very little. Sometimes they do more harm than good. Sound economics are needed if we are to actually help the poor and not just our consciences.

Comment: Comparative advantage. Another great Kevin DeYoung article! Image source: the Economic Research Institute for Northeast Asia