American Apparel: the downside to sweatshop-free labor

Further evidence that it's untenable for garment factories to employ American citizens while making a profit: troubles for American Apparel (APP), long targeted by the U.S. Immigration and Customs Enforcement Agency, were recently laid bare. The U.S. says nearly a third of the company's 5,600 Los Angeles factory workers may not have proper documentation: 1,600 may have gained employment through "suspect and not valid" eligibility documentation, and another 200 may be ineligible to work in the U.S. due to discrepancies in their I-9 identity documents.

American Apparel has built its corporate reputation on "sweatshop-free" U.S.-made T-shirts and knit clothing. But rather than addressing the treatment or legal employment status of its workers in the SEC filing -- except with a vague statement about its policy to comply with federal obligations -- the company only addressed its profitability. Even if all the employees end up being ineligible, management said in its 8-K, filed June 24, "The Company believes that its current surplus levels of inventory and manufacturing capacity would mitigate the adverse impact of any disruption to its manufacturing activities that may potentially result from the loss of these employees."
Writing for our sister site BloggingStocks, Zac Bissonnette found the statement damning, not for its uncaring SEC-form tone but for its balance-sheet betrayal. "We have way too much inventory as it is, so this isn't a big deal," Bissonnette translates. "If the potential loss of one-third of its employees won't have a materially adverse effect on its operations, the company's operations are in pretty bad shape."

But I have other problems with this report: It reveals consumers' sense of entitlement to consume cheap goods and food, produced with entirely legal, humane working conditions. The facts are that naturalized Americans generally won't work at the wages, or under the conditions, that foreign workers are eager to. Yet the Immigration and Customs Enforcement Agency punishes the illegal immigrants, while the companies who employ them merely file forms that blithely state the its operations won't suffer if its labor force is arrested.

CEO Dov Charney has called for legalization of foreign workers, and he's helped promote his cause with billboards and T-shirts proclaiming "Legalize LA." This is great; I almost admire the factory for employing such a huge number of illegal immigrants -- at least someone is giving them work. But even "sweatshop-free," "American-made" T-shirts priced at $8 or $10 wholesale (as opposed to just $1 or $2 most T-shirts cost retailers) aren't really paying the true cost of employing workers humanely.

We need to be prepared to pay more for goods -- and to buy a lot fewer of them -- before this problem can be fixed. I'm not blaming American Apparel, or the retailers who stock their goods. I'm blaming us consumers. We did this. And it's time we put it right.

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