|Title: Sweatshops: the theory of the firm revisited
Author(s): Maryke Dessing, (Economist, Geneva, Switzerland)
Citation: Maryke Dessing, (2004) "Sweatshops: the theory of the firm revisited", Journal of Economic Studies, Vol. 31 Iss: 6, pp.549 - 579
Article type: Conceptual Paper
DOI: 10.1108/01443580410569271 (Permanent URL)
Publisher: Emerald Group Publishing Limited
Abstract: When the labor supply schedule is bending forward at low wage levels, the average cost curve of firms does the same. This leads to the possibility of multiple equilibria, in particular for monopolists, thereby opening a broader range of options and keeping non-profitable firms in business. However, the global maximum is always occuring along the negatively sloping segment of the labor supply. Therefore, total welfare is declining, except perhaps in the case of monopolists, when firms are pursuing a low-wage strategy to expand output and profits, and are exploiting labor's subsistence needs to pay wages below the marginal product.
[translation: for workers with subsistence living standards (constrained by the need to earn a real income sufficient to survive), falling wages evoke an increased quantity of labor-power supplied, contrary to the received theory of labor supply. This means that some firms can survive and prosper by paying extremely low wages (or offering really bad working conditions, as in Bangladesh). ]