Increasing Shareholder Wealth

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.

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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


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