Sweatshops: the theory of the firm revisited

Maryke Dessing (Economist, Geneva, Switzerland)

Journal of Economic Studies

ISSN: 0144-3585

Publication date: 1 December 2004


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.



Dessing, M. (2004), "Sweatshops: the theory of the firm revisited", Journal of Economic Studies, Vol. 31 No. 6, pp. 549-579. https://doi.org/10.1108/01443580410569271

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