Abstract
This paper argues that while rooting out sweatshop conditions raises unemployment, the potential gains include an increase in decent work employment, a pro-worker shift in distribution, and an improvement in overall efficiency. In a search model of employment inspired by firm- and household-level evidence about the harm that sweatshop conditions pose to workers' capability to be productive at work and to be vertically mobile, this paper unpacks the irony of job losses and efficiency gains by examining equilibria where, unless regulations are in place, employers tolerate unproductive sweatshop conditions, and where workers accept insufficiently compensating sweatshop wages.
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