Improving Labor Standards in the Apparel Industry: Can Government Make a Difference?

Abstract

This paper examines patterns of compliance with federal minimum wage laws in the U.S. apparel industry and analyzes the impact of new methods of intervention designed to improve regulatory performance. Specifically, in 1996, the U.S. Department of Labor began to use pressure arising from its statutory ability to interrupt the flow of goods in the retail apparel supply chain as a means of gaining manufacturer agreement to monitor its network of contractors. Drawing on contractor-level data from a randomized survey of apparel contractors, the paper evaluates the impact of these agreements between manufacturers and the government used to monitor contractor behavior. Non-compliance is significantly correlated with characteristics predicted by theory including employer size, skill content, and the elasticity of labor and product demand. Nonetheless, stringent forms of contractor monitoring are associated with significant reductions in the presence, incidence, and severity of violations of minimum wage standards. The results suggest that well-designed private/public monitoring efforts can lead to significant improvements in regulatory performance. This has implications beyond apparel and to any number of industries where supply chain dynamics have become important.