This chapter explains how working conditions and wages are jointly determined. Overall productivity limits total compensation but then how total compensation is split between monetary wages and other working conditions is largely driven by employee preferences. Safer and more pleasant working conditions are what economists call normal goods. When worker compensation goes up, workers demand greater safety and better conditions. Thus, the poor working conditions in sweatshops largely reflect the fact that these workers are desperately trying to feed, clothe, and shelter their families and prefer the bulk of their compensation in monetary wages. The chapter explains how legally mandating better conditions makes workers worse off by both unemploying some workers and changing the mix of compensation into a less desirable mix from the workers’ perspective. It illustrates this lesson with survey evidence from sweatshop workers in Guatemala.