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Essay/Term paper: Increasing shareholder wealth

Essay, term paper, research paper:  Economics

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Increasing Shareholder Wealth


The goal of all corporations is to increase shareholder wealth.
Shareholder wealth is increased is by increasing the corporation's profit. In a
corporation involved in manufacturing, reducing the cost of the factors of
production is essential for growth.
One of the major components of production costs is labor. When in comes
to labor costs, the corporation and the worker usually have very different goals.
The corporation wants to pay the worker as little as possible, while
maintaining the productivity and quality required by its customers. The worker,
on the other hand, seeks to increase his or her personal wealth by demanding the
highest possible wages and benefits.
Because of this somewhat adversarial relationship, corporations and
labor have developed strategies to strengthen their positions. One of Labor's
main defenses is to organize in unions. The existence of unions can be an
effective method of gaining a position of strength, especially when dealing with
power corporations. Depending on the size of the corporation, they might have
the power to employ methods which are difficult for the workers to prevent or
One tactic used by corporations to reduce labor costs is the utilization
of "sweatshop" labor. A sweatshop is a manufacturing facility that operates
below minimum standards of safety and/or wages and benefits. Sweatshops
flourished in the United States in the late 1800s and early 1900s.
This paper will examine the re-emergence of sweatshop manufacturing in
the U.S. and abroad, and its impact on how manufacturers do business. Two U.S.
corporations will be discussed in detail. And the issue of utilizing low cost
labor domestically and offshore, including arguments for against this practice,
will be discussed.


Since, by definition, sweatshops violate the basic rights of workers, a
brief discussion of the history of the labor movement is a necessary element in
understanding the use of sweatshops. This section is intended to give a brief
outline of some of the events leading to worker's rights laws. The following
information was excerpted from NBC News Online.

June 3, 1900

Garment workers form the International Ladies' Garment Workers' Union to protest
low pay, fifteen-hour workdays, no benefits, and unsafe working conditions.
While weak at the onset, the ILGWU struggles to help all workers fight for
better conditions and higher pay.


November 22,1909-February 15, 1910 Organized by the ILGWU, 20,000 shirtwaist
makers, mostly women and children, stage the first garment workers strike. Many
picketers are beaten or fired. In the end, the garment workers win a pay raise
and a work reduction to 52 hours of work per week.

July - October, 1910

ILGWU organizes a second large strike which featured 50,000 cloak-makers. Taking
their lead from the women, this mostly male strike won uniform wages, a shorter
work week, and paid holidays. A Joint Board
of Sanitary Control is set up, as well as an arbitration board. As a result of
the strikes in 1909 and 1910, the ILGWU swells in membership.

March 25, 1911

One of the worst fires in U.S. history breaks out at the Triangle Shirtwaist
Company in Manhattan's Lower East Side, killing 146 garment workers. The
Triangle fire prompts the government to take action and establish regulatory
control over the industry. Days after the tragedy, 80,000 people participate in
a funeral procession up Fifth Avenue.

June 25, 1938

President Franklin Roosevelt signs the Fair Labor Standards Act (FLSA) — also
known as the federal wage and hour law — guaranteeing a minimum hourly wage of
25 cents. The law is enforced by the Department of Labor's Wage and Hour
Division and sets the federal minimum wage
and overtime requirements. It also prohibits child labor and requires employers
to keep adequate time and payroll records. In 1996, the FLSA covers more than
110 million workers.


The largest nationwide ILGWU strike in union history occurs, with 100,000 union
members walking out of factories. They win new concessions, including more
holidays and higher wages.


This three-decade period is marked by rapid globalization which hits the garment
industry. In the 1960s, faced with increased unionization, higher wages, and
better benefits in the Northeast, companies
begin moving factories South. However, by the late-1970s, the South
had all but caught up in terms of Union activity. In the
1980s, many manufacturers and retailers begin outsourcing their production to
subcontractors in Central America and Asia.
Countries such as Honduras, El Salvador, Nicaragua, Malaysia, Indonesia, and
Singapore provide free-trade zones and
laborers who would work, according to the National Labor
Committee, for as cheap as 9 cents per hour. By the late 1980s and
early 1990s, under increased competitionfrom foreign subcontractors, sweatshops
start to flourish once again in the U.S.

September 9, 1994

The U.S. Department of Labor announces it will step up enforcement of the FSLA
"Hot Goods" provision. The Fair Labor Standards Act's "Hot Goods" clause allows
the DOL to fine and seize the goods of those manufacturers and retailers who
knowingly sell merchandise manufactured by companies violating the FLSA. While
the provision had been a powerful weapon, it was rarely enforced in the past.
Secretary of Labor Lynn Martin, who served under the Bush administration, was
the first to warn garment manufacturers they would be held responsible under the
provision. During the Clinton administration, sweatshops gained more media
attention, Labor Secretary Robert Reich enforces the provision more stringently.

August 2, 1995

The Department of Labor raids a factory in El Monte, California. The DOL finds
72 garment workers toiling in "virtual slavery" for negligible wages of as
little as 70 cents per hour. Large U.S.
retailers such as Disney, Hecht's and Bloomingdale's are found to have sold
clothes made at El Monte. U.S. Labor
Secretary Robert Reich notes that while "the El Monte operation was an extreme
example of worker abuse...violations of minimum wage and overtime laws
are the norm in the [garment] industry." Since then,
the DOL has filed a civil suit seeking $5
million dollars in back wages for the rescued workers. The Department of Labor
is currently in discussions with several
large retailers on how to resolve the back wages issues without going to court.
June 30, 1995

The ILGWU becomes the Union of Needletrades, Industrial & Textile Employees
(UNITE). Since its transformation, UNITE has initiated numerous campaigns to
bring attention to sweatshops and garment industry working conditions.

September 12, 1995

DOL Secretary Robert Reich calls a Retail Summit in New York to address the
issue of sweatshops. He calls on some of the biggest manufacturers and retailers
to help wipe-out sweatshops. The summit
results in part in a "Statement of Principles," which is presented by
the National Retail Federation as part of their efforts
to curb sweatshop labor. The document states that all of the participating
retailers agree to require their suppliers to comply with all hour and
wage laws that apply to them. The agreement, signed by
128 U.S. retailers, also emphasizes their
promise to cooperate more closely with law enforcement. The NRF, which
represents the $2.2 trillion retail
industry, is the largest association of its kind.

October 17, 1995

Secretary Reich hosts a meeting of manufacturers at the American Apparel
Manufacturers Association. He invites retailers and manufacturers to join the
government's effort against sweatshops, and makes public a list of manufacturers
who signed compliance monitoring agreements.

December 15, 1995

The Gap clothing company agrees to allow an independent monitor to evaluate its
factories in Central America, becoming the first U.S. apparel company to do so.

February 19, 1996

Secretary Reich releases the Department of Labor's Fair Labor Fashion
Trendsetter List of manufacturers and retailers which are helping in the fight
to abolish sweatshops. The 31companies on the list are praised for taking
responsibility for monitoring the work practices of their contractors.

April 29, 1996

The National Labor Committee, a private foundation, testifies before the
Democratic Policy Committee on Child Labor and targets entertainer Kathie Lee
Gifford's clothing line. Gifford says she
was unaware that her Wal-Mart clothing line is assembled by illegal child
laborers. At a congressional hearing, she
speaks out against the practice of using sweatshop labor.

May 23, 1996

The Department of Labor launches an investigation into Seo Fashions in New York
City, which had failed to pay its workers for several weeks, and was
manufacturing "Kathie Lee" clothing.

May 24, 1996

Frank Gifford, Kathie Lee Gifford's husband, visits the Garment District Justice
Center to hand out money to underpaid workers who had been


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