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  • - [Don] As part of Everyday Economics, we asked you to tell us what topics you want us to

  • cover. You voted, and from this last round, the second most popular suggestion comes

  • from Elizabeth, who asks, "How does the purchase of fair trade goods affect wages

  • in developing countries?"

  • It's an excellent question. Fair trade is one of several types of activities aimed

  • at increasing living standards in the poorest countries. So let's step back to

  • discuss these issues broadly. Most importantly, it's worthwhile to remember

  • that, although working conditions in poor countries are distressing from a Western

  • vantage point, the jobs that we find objectionable are voluntarily chosen by

  • the workers in those countries. That awful factory job is the best available option

  • for that person. When that job disappears, then that poor peasant must take his

  • second best option, a job that he judged to be worse than the awful factory job.

  • While we might the working conditions intolerable, that's because we now have

  • better options. If our goal is to help that worker, we surely don't want to

  • destroy that job.

  • That said, let's look at fair trade. To use the fair trade label, one must comply

  • with the standards and certification requirements of one of a handful of fair

  • trade organizations. Importantly, large producers and producers in more wealthy

  • countries are better equipped than smaller producers to meet fair trade requirements.

  • For example, fair trade coffee comes from relatively wealthy countries like Costa

  • Rica, as opposed to from the poorest of the poor countries like Ethiopia. So by choosing

  • fair trade coffee, you choose not to buy from the poorest producers. Is that fair?

  • How about the workers who are able to produce fair trade coffee. Do their wages

  • improve? Studies so far show no conclusive evidence that fair trade workers receive

  • any higher wages. These studies find that retailers capture most of the extra money

  • paid for fair trade coffee. So to answer the question. Fair trade

  • lowers the demand for coffee produced by the poorest workers, and so it forces many

  • of these workers into jobs that are worse than the ones that they'd have without

  • fair trade, and for those workers who can thus produce fair trade coffee the extra

  • money doesn't get back to them via the supply chain. So what can help poor workers?

  • First, competition for labor is key to increasing wages. So rather than shrinking

  • employment options, which is what fair trade policies do, it would make sense for

  • us instead to call for practices that maximize employment options for poor

  • workers. Of course, no employer will pay any worker more than the value that that

  • worker can produce. So, while competition is necessary, increasing worker

  • productivity is the main path to high and rising wages.

  • And how do we do that? Answering that question is part of an entire branch of economics,

  • Development Economics, that explores why some countries are rich while others

  • remain poor. Check out our MRU course on that topic to learn more. Until then,

  • please continue to send us suggestions on what other questions you'd like answered

  • and vote on your favorites here. Here's the current leader-board. Go vote and tell

  • us what topics you want covered next.

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