Sweatshop Equilibrium

43 Pages Posted: 18 Aug 2009

See all articles by Nancy H. Chau

Nancy H. Chau

Cornell University - School of Applied Economics and Management; IZA Institute of Labor Economics


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: sweatshop equilibrium, on the job search, capability deficits

JEL Classification: J64, J88, O15

Suggested Citation

Chau, Nancy H., Sweatshop Equilibrium. IZA Discussion Paper No. 4363. Available at SSRN: https://ssrn.com/abstract=1455525

Nancy H. Chau (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

Ithaca, NY 14853
United States
607-255-4463 (Phone)
607-255-9984 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

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