Sweatshop Equilibrium

Nancy Chau

No 4363, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper presents a capability-augmented model of on the job search, in which sweatshop conditions stifle the capability of the working poor to search for a job while on the job. The augmented setting unveils a sweatshop equilibrium in an otherwise archetypal Burdett-Mortensen economy, and reconciles a number of oft noted yet perplexing features of sweatshop economies. We demonstrate existence of multiple rational expectation equilibria, graduation pathways out of sweatshops in complete absence of enforcement, and country-specific efficiency and distributional responses to competitive forces and social safety nets depending precisely on whether graduation criteria are met.

Keywords: capability deficits; on the job search; sweatshop equilibrium (search for similar items in EconPapers)
JEL-codes: J64 J88 O15 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2009-08
New Economics Papers: this item is included in nep-dge
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Published - revised version published as 'On Sweatshop Jobs and Decent Work' in: Journal of Development Economics, 2016, 121, 120 134

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