A few weeks ago, I published “The luxury of not knowing”, about the recent labor scandals in the Italian luxury production industry. My focus was on the morality of what had been alleged and/or admitted to, and I wrote:

But there’s another aspect of this story: the economics. How much were the maisons in question saving by engaging in this behavior?

Back in 2012, when the Affordable Care Act (ACA) was on its way toward implementation, Papa John’s founder and CEO John Schnatter was unhappy about what providing health insurance to more employees was going to cost his company. On a conference call, he estimated that the law would add about 11 to 14 cents to the cost of a pizza, or 15 to 20 cents per order. His proposed solution was straightforward: Papa John’s would, as he put it, “pass that cost on the consumer in order to protect our shareholders’ best interest”.

Try to wrap your head around the idea that in floating the 14-cents-per-pizza argument, Schnattner—an opponent of the ACA—was attempting to both reassure his investors but also warn politicians and the public. His plan didn’t work out the way he had intended.

The reaction on social media was mostly negative, basically amounting to people asking to be charged those 14 cents so that workers could have healthcare. ABC pointed out that 14 cents was less than an extra topping.

The interesting question in this episode wasn’t whether health insurance cost more; of course it did. The interesting question was whether the additional cost was large enough that anyone should prefer the cheaper pizza to the benefit those few cents were paying for. And hardly anyone did.

This incident came back to me while I was researching these two articles. Whether from the standpoint of products, business models, economics, or workers, pizza and luxury couldn’t be much different as industries. But the underlying question is surprisingly similar:

Once we know what decent treatment actually costs, how does that affect the price of what we buy?

That question became less abstract when CBS put a luxury handbag in front of an Italian manufacturer and asked him what it cost to make.

Last month, on CBS Saturday Morning, Rome-based correspondent Chris Livesay interviewed the owner of an Italian factory that makes goods for the luxury industry, concealing their identity:

This is honest and valuable reporting, but it could be misleading. The way it was presented, it would be easy to think that your new handbag only cost the maison $50 to make. That’s not correct. Labor is an important part of the cost of a luxury item, but it’s only one part of all the costs involved in getting a product from an idea into a boutique and then convincing you to walk in to buy it:

In other words, it’s not at all fair to the maisons to think it costs $50 to make a $3,000 handbag. But in no way, shape, or form does that fact let them off the hook.

The implication that the other $2,950 is essentially profit isn’t correct. But correcting that exaggeration makes it possible to ask the right question. So let’s ask the right question.

I’m going to walk through what it actually might cost a maison de luxe to manufacture a 3 000 € handbag in Italy and what that implies for what it would cost to treat workers humanely.

Step 1: VAT. Let’s start with value-added tax (VAT). Italy’s standard VAT is 22%. 3 000 € ÷ 1.22 = approximately 2 459 € revenue exclusive of VAT.

3 000 € retail price − 541 € VAT = 2 459 € after VAT

Step 2: Production costs. Different companies report these costs in different ways and using different terminology, but looking at the 2025 results from Prada, Moncler, and Brunello Cucinelli, we get a range of 19.7–24.8% of revenue as cost of goods sold (COGS). Applied to the after-VAT revenue on a 3 000 € handbag, we get something like 480–610 € as a reasonable range of COGS.

3 000 € retail price − 541 € VAT = 2 459 € after VAT
2 459 € after VAT − 480–610 € COGS = gross profit of 1 849–1 979 € after COGS

Step 3: Labor costs. Workers being exploited in these schemes were reportedly being paid something like 4 € per hour, compared to a conservative assumption of 16 € per hour as a legal floor for what they should have been paid, after accounting for sector-based wage agreements and other employer contributions.

We don’t know how long it takes to make a handbag in these shops. If they’re paying their workers 4 € per hour as in the cases that have come to light through court documents, that’s something like 12 hours of labor. But that can’t be the answer, because it doesn’t account for owner profits. For discussion purposes, let’s say it’s 8 hours.

(I don’t mean to imply that, say, Hermès takes 8 hours of artisanal work to make a handbag in one of their French ateliers. It’s surely far more than that. I’m saying that for the maisons that have been outsourcing their work to layers of cheap subcontractors in Italy, 8 hours is probably a reasonable figure to use, and fits with the owner account in the CBS report.)

If the sweatshops are underpaying their workers by 16 € − 4 € = 12 € per hour, and it’s 8 hours of labor to make a handbag, that’s an additional 8 hours × 12 € per hour = 96 € to pay those workers a minimally legal and decent wage.

We know approximately how much more it would cost a maison to make a 3 000 € handbag while paying workers legal and ethical wages as opposed to the illegal and unethical alternative: 96 €. How could that be paid for?

If the maison chose to absorb the cost, then their COGS would go up by 96 €. In other words, instead of a gross profit of 1 849–1 979 € on a 3 000 € handbag, they’d make 1 753—1 883 € on that same item. In other words, their gross profit would fall by 4.9–5.2 percent. Cue the tiny violins.

What I’m more interested in here is if they simply passed the cost along to their consumers. Their pre-VAT cost would rise by 96 €, resulting in a post-VAT price increase of 96 € × 1.22 = 117 €. That would lead to a final retail price of 3 117 €.

John Schnatter thought that consumers would be upset about paying an additional 14 cents per pizza so that his employees could have healthcare. He was wrong.

The maisons who have been abusing workers in Italy appear to think that their customers would be upset about paying an additional 117 € on a 3 000 € handbag so that their subcontractors can be paid a legal and ethical wage. I hope and believe they’re wrong.

If the choice is a 3 000 € handbag made under abusive conditions or a 3 117 € handbag made under lawful ones, I have a strong suspicion about what most luxury customers would choose: charge us 3 117 €.

This should be a wake-up call to anyone who buys luxury goods. Here are some of the things we can no longer use as indicators of ethical production:

Am I suggesting that we should start peppering luxury sales associates with questions about the provenance of their products? No. To the extent they’re able to answer at all, it’ll be carefully scripted and unlikely to tell you what you want to know.

Instead, do your own research. You can do it live and get the results in less than five minutes with the generative AI prompt from my article “Don’t just buy the story”.

We’re talking about here about sums that can be enormously consequential to the person at the bottom of the supply chain and almost invisible to the person at the top. Moving from 4 € per hour labor to lawful employment changes a 3 000 € purchase by only four percent, even if the maison passes every additional euro to its customer. And, of course, the maison doesn’t have to do that. It could choose to make a little less money.

Luxury has spent decades telling us that details matter: the grain of the leather, the precision of a stitch, the finish of a clasp, the provenance of a fiber. Surely the treatment of the human being making the object deserves to be one of those details.

Which brings me back to Papa John’s. Fourteen cents was supposed to demonstrate how expensive healthcare would be. Instead, putting a number on it made a lot of people ask: That’s all?

After doing the same exercise with luxury, I find myself asking something very similar.

And all this to save what, exactly?

Would you pay an extra 117 € on a 3 000 € handbag (or similar luxury item) to be reliably assured that everyone involved in its production had been treated humanely?