II. The Sweatshop System in the Apparel Industry

The United States (U.S.) clothing industry began to develop in the eighteenth century after the Civil War.  Prior to that most clothing was made in homes.  Currently, the textile and apparel manufacturing industries employ an estimated 1 million workers.  Production workers (those involved in cutting, stitching and packaging) make up about 85% of the workforce and women make up an estimated 70% of these workers, compared to 31% women in all manufacturing.  "Hispanic" workers make up 24% of garment workers, as opposed to 10% in all other industries.⁴

According to the American Apparel Manufacturers Association (AAMA) the number of domestic apparel manufacturing employees in 1998 was 779,000, which is a 43% decline in the workforce since the seventies.⁵  In the past three decades, apparel production has steadily been moving offshore as retailers and manufacturers have sought cheaper, more flexible labor abroad, while escaping responsibility for working conditions and consolidating their leverage in relation to local contractors.  Increasing trade liberalization is only expected to intensify this trend.  For instance, since the passage of the North American Free Trade Agreement (NAFTA), Mexico has become the largest importer to the U.S., and offshore sub-contracting of garments has been shifting from Asia to Mexico and the Caribbean. Trade associations predict an increase in offshore sub-contracting with the replacement of trade agreements like the General Agreement on Trade and Tariffs (GATT) by agreements at the World Trade Organization (WTO).

A. The Sub-contracting System

Sub-contracting allows businesses to "contract" out discrete services and production requirements to independent sub-contractors.  In the U.S. apparel industry, almost none of the retailers or manufacturers currently produce, at their own factories, any of the garments they sell.  All apparel sold in the U.S. is produced in facilities owned by independent contractors/sub-contractors.  Many industries, including apparel, use this system to keep their workforce fragmented and flexible. In other words, by sub-contracting, companies do not have to hire and assume legal responsibility for the large number of workers required for their production/service needs. The sub-contracting system in the garment industry has evolved into the present-day apparel pyramid described below.

The garment workers who stitch, cut and dye the clothing that consumers buy in retail stores are at the base of the apparel pyramid.  Although they constitute the majority in sheer numbers, they have the least wealth and control over terms and conditions in the industry. The workers are separated from the retailers, who are the smallest in number but exercise the most control in the industry, through several layers of sub-contractors, contractors and manufacturers.

Retailers, situatedat the top of the apparel pyramid, order and buy clothes from manufacturers and resell them to individual consumers.  Manufacturers try to out-bid each other for orders from retailers, and since there are a few large retailers, they are able to dictate prices to manufacturers.  Mega-retailers like Federated Department Stores (includes Macy’s and Bloomingdales) and large-volume discount stores such as Wal-Mart and Kmart, which have consolidated their grip on the industry by producing garments under private labels as well, have complete control over apparel pricing.

Under current labor law, however, retailers are not responsible for any labor law violations in the manufacturing process, even though they have the most control over working conditions as they are able to dictate the prices and the pace of work performed in factories.  This control, plus their protection under current labor laws, is used to rake in 50% - 80% of apparel sale prices while imposing sweatshop prices for "piecework" to factory sub-contractors, who in turn squeeze the workers to produce high volume at low wages.

Manufacturers form the next level of the apparel pyramid.  Manufacturers design and register product lines, purchase fabrics and receive orders from retailers.  They contract out the actual clothing production to contractors who run garment factories.  Going through the manufacturer enables the retailer to avoid dealing directly with contractors and garment workers. However, larger manufacturers like Donna Karan International, have been entering the retail business directly, consolidating their control over the industry and increasing revenues and profits.  For example, sales at the recently established (August 1999) 16,000 square feet DKNY flagship store on Madison Avenue, have been ranging between $1,500 to $2,000 per square foot compared with slightly over $400 for other DKNY full-price locations.⁶

Contractors are responsible for producing and sending garments to the manufacturer.  This is the group directly responsible for the daily working conditions of workers within each factory.⁷

Sub-contractors often work with contractors in producing specific portions of the garments.  This is because few contractors have all the means of production in their factories.  Cutting, dying and sewing can be performed by different sub-contractors.  The semi-finished garments are then sent to the contractor.  Like contractors, sub-contractors deal directly with the garment workers in their own factories.  Because numerous sub-contractors may be involved in the production of even one apparel item, monitoring conditions and establishing visible links between retailers and manufacturers is difficult.

B. Bringing the Sweatshops Home

Retailers and manufacturers exert near total control over their contractors… When retailers and manufacturers squeeze contractors, contractors squeeze their workers – and the modern sweatshop is born.  This system of independent contracting provides tremendous flexibility for retailers and manufacturers.  It also results in unstable work, impoverishment and harsh conditions for workers.⁸

Retailers and manufacturers together start a "race to the bottom" between contractors, who compete with each other to produce more garments for less money. Unlike manufacturers and especially retailers – who spend millions in creating brand names, company image and clientele – it is very easy for a contractor/sub-contractor to close up shop (when faced with claims for back-wages and other labor law violations) and re-open under a different name, but with the same or similar list of clients.⁹  Sub-contracting, therefore, also weakens attempts by workers to organize, with or without a union.

Richard P. Appelbaum and Leonard I. Beerman argue that, "This pyramid structure is no accident: It was created by retailers and manufacturers to reap the benefits of cheap labor, without having to assume legal or moral responsibility for sweatshop conditions that can result."¹⁰  There are over 22,000 contractors and sub-contractors in the U.S. alone and an even greater number overseas, while there are less than 1,000 major manufacturers in the U.S. and only a handful of major retailers like Federated, Walmart, K-Mart and Sears.¹¹  Manufacturers and retailers, who are not held accountable for working conditions and labor claims under current labor laws, have a great deal of flexibility in choosing contractors. To maximize profits, they can impose production pace and prices that contractors must meet in order to get business.  A combination of immense influence and wealth along with no legal accountability by definition creates a system in which retailers and large manufacturers extract the most labor from workers at the minimum cost.

The embodiment of this system is the current day sweatshop – workplaces characterized by extreme exploitation, poor working conditions, absence of a living wage or benefits, extremely long hours, intense pace of work imposed through constant supervision and the piece rate system, violation of labor laws, and arbitrary discipline. The sub-contracting system has exacerbated and spread sweatshops conditions in the U.S., especially in industries such as apparel manufacturing in New York City (NYC) and Los Angeles.