COLUMN ONE : It’s Blood, Sweatshops and Tears : Legitimate garment makers are being squeezed from both sides. Illegal shops undercut on prices. Manufacturers and retailers want more for less.

Charlie Park, who owns a shop in Los Angeles that sews garments, doesn’t have slave laborers. His employees come to work in the morning and go home at night, and they earn $4.25 per hour or more, a legal wage. Park pays them by check and withholds taxes, as required by law.

But when another garment shop opened up in his building and started paying its workers in cash, 20 of Park’s 65 employees left to work for the new, unlicensed operator.

It would be easier to be illegal, as he once was, Park said. Then it would not matter how--or how much--he paid his workers because regulators would not even know about him. His would be just one more of California’s 2,000 to 5,000 illegal garment shops.

Instead, he must compete with those shops that, by skimping on wages and other working conditions, undercut him on price. Meanwhile, he says, the regulators inspect his shop, not the sweatshops they do not know about.

Lest he antagonize those inspectors, Park does not want his real name used.

But his tale and others illustrate that for the thousands of contractors who are the backbone of Southern California’s garment industry, there is every temptation to lie, cheat and steal, in ways large and small.

In this biggest of Southern California’s manufacturing industries--employer of 120,000 people--regulators say there are too many small, desperate operators, and too many manufacturers and retailers who want more for less.

Retailers and manufacturers squeeze from above as if they expect contractors to cheat. And down the block, hungry rivals do just that, running illegal shops in unsafe factories, outnumbering inspectors hundreds to one and undercutting their legitimate competitors on price.

“Is it a hard spot?” another contractor, Gary Jue, asks rhetorically. “It’s a hot spot and a hard place.”

Jue and Park are among the 5,000 legal garment contractors in Southern California. They are the heart of a portion of the economy that has exploded repeatedly across the public consciousness--and conscience--this year.

Their economic woes reverberated not only through the alleged slave labor camp unmasked in a raid this month in El Monte, but also through the bizarre string of recent murders and assaults centered on the Los Angeles maker of Carole Little women’s apparel.

California’s fashion industry was never an easy or particularly pretty business. It grew up highly competitive and fast moving, craving the cheap labor and agility of small contract shops that could respond to consumers’ whims. But when the boom times of the 1980s ended, it became positively brutal.

Consumers got stingy. Retail stores put the squeeze on their suppliers--especially clothing manufacturers--demanding more control over prices and less vulnerability to oversupplies.

As customers sought cheaper clothing, discount chains such as Wal-Mart became powerful forces in apparel. Traditional department stores failed, debt soared and bankruptcies spread, a winnowing process that has hit Southern California retailers as hard as anyone.

The discounters’ influence spread throughout the garment industry. As buyer of $100 billion in goods annually, Wal-Mart could demand that suppliers deliver goods early and wait months for payment--pushing down the cost of carrying inventory onto the makers of merchandise, including apparel.

Meanwhile, the growing movement of goods and people from country to country led to stiff competition from apparel shops overseas. In the United States, the explosion of legal and illegal immigration from Latin America and Asia created a vast supply of labor prepared to work for next to nothing.

That mix of events created an opening for those from Thailand who, according to state and federal agents, held 72 of their fellow Thais in servitude for years, forcing them to sew garments up to 22 hours a day for 59 cents an hour, until they were discovered Aug. 2. To say the least, this shop in El Monte was competitive--and its products found their way to the best-known retail counters.

Unsolved Murders

Police and industry insiders believe that the same pressures to cut costs figured in the unsolved Carole Little murders. Beginning in 1993 and continuing through May, three executives with ties to Carole Little have been slain, two others were shot and others have been threatened.

Police and others note that the attacks took place amid a cost-cutting strategy undertaken by Carole Little--similar to that used by other manufacturers--that dramatically pared the ranks of its domestic contractors and drew ominous threats in reply.

That narrowing of suppliers was part of an ongoing economic blood-letting in Los Angeles’s garment industry, a process that threatens the survival of thousands of shop owners.

The unmasking of alleged slave labor at the bottom of this system has brought expressions of shock from manufacturers and retailers alike. But it has raised the question--now being investigated by state and federal agents--of whether the people whose design and pricing decisions dictate the economics of apparel-making can credibly claim complete ignorance of the conditions in which the garments are made.

When everything was selling, industry experts say, the manufacturers called the shots, choosing the contractors and carving out healthy profits.

But today, the retailer often dictates to the manufacturer the style, pattern and material of the items hanging on the rack with the store label.

“There has been a huge shift in the balance of power away from the manufacturer and toward the retailers, largely because there’s been a consolidation in the retail ranks and a huge increase in suppliers,” said Carl Steidtmann, chief economist with the retail consulting firm Management Horizons in Columbus, Ohio.

Los Angeles attorney Richard Reinis, who often represents manufacturers and large contractors, says net profit margins for legitimate clothing manufacturing firms now average only 10% to 12% before taxes.

To maintain their margins, manufacturers can cut costs by modernizing, using simplified designs or cheaper fabric--or squeeze it from the sewing contractors below them.

“It is my contention that many retailers and manufacturers knowingly seek out illegal contractors,” said Joe Rodriguez, executive director of the Garment Contractors Assn.

So over the last several years, California’s garment makers got tough with their contractors, cutting the prices they paid and reducing the number of small shops they used.

Increasingly, manufacturers shifted their business to larger domestic contractors--those most able to afford new technologies--and to foreign operators.

In response, many Southland contractors shut down, or put second and third mortgages on their homes, or added a seventh day to their workweek, or let go all but their fastest workers and went back to the machines themselves. And others went underground.

Throughout Southern California, regulators say, many if not most garment contractors are operating just a hair’s breadth from failure. Many stay in business by renting space in rundown buildings, paying low wages, avoiding taxes and ignoring health and safety codes.

Jose Millan, an assistant state labor commissioner, often goes out on inspections by state and federal labor and health and safety officials.

Underground Shops

On a recent trip, they stumbled onto an unlicensed shop being run by a Korean American couple. The shop was replete with safety hazards, and the owners had not been paying their workers legal wages. Millan bagged finished garments to hold as evidence on the citations against the couple.

“He was crying . . . wondering about feeding his two kids,” Millan said. “But should you have these businesses undercapitalized and trying to make it? The answer is no. It certainly isn’t fair to others to be able to produce these goods so cheaply.”

Indeed, legitimate contractors find it galling to be in competition with shops that do not obey laws--on wages, overtime, health and safety, and workers’ compensation insurance, among others--that make up a large part of a legal contractor’s costs.

“The underground economy is our competition, not each other,” said Robert M. Walter, who runs Frank Walter Sportswear Contractors Inc. in Los Angeles. “The price for goods made by legitimate contractors are within pennies or nickels of each other, but the underground rate is 30% to 40% lower. When production managers say, ‘I’m not going to pay you $3 to sew that garment,’ it’s not just a negotiating tactic.”

With just 45 state and federal agents to inspect garment shops part time, U.S. Labor Department officials have made increasing use of self-policing agreements known as the “long form,” by which manufacturers with repeat violations must monitor contractors to ensure that they comply with federal labor laws on minimum wage, overtime and child labor.

About 14 manufacturing companies have signed the agreements, including such well-known labels as Rampage and Chorus Line. In June, eight Los Angeles manufacturers created a voluntary monitoring program called the Compliance Alliance to improve the image of the garment industry and ensure that contractors obey the law, said attorney Reinis, who works for the alliance.

That could add 50 cents to $2 to the retail price of typical garments, the industry estimates.

“It’s not a lot of money to come into compliance with the law,” said Bill Buhl, western regional administrator for the wage and hour division of the U.S. Department of Labor.

Contractors get paid a per-garment price from the manufacturer, typically less than 10% of a garment’s final price. The more successful legitimate contractors are adept at calculating their costs and at hiring the fastest workers. The better shops pay above the $4.25 per hour minimum wage if workers exceed quotas.

But many shops use unlawful pay schemes while still managing to look legitimate on the books. One method is to pay workers $170 with a check each week--that’s minimum wage for 40 hours--but pay them far less than federally mandated rates for overtime.

Like lots of others in the business, Miguel Mendez and his father started out as contractors on the shady side of the law. They began sewing for someone else, then got a couple of machines and took in work on their own, slowly hiring others and building their business. As it got bigger and stronger, they took their Los Angeles shop legal.

Mendez, a documented immigrant from Guatemala, said, “It’s hard to live by all the rules.”

Yet, he is proud to do so. He is proud too that he is able to hire other immigrants--most of his 24 employees are fellow former Guatemalans--and provide them with a safe, comfortable work environment. He just bought them new chairs to replace metal folding chairs.

“I just imagined them having to sit on a hard chair like that all day long and that’s not fair,” he said. “I want to take care of my regular people.”

Legal contractors work hard taking care of themselves. Most earn a moderate living--$40,000 to $50,000 a year is often given as the average a profitable, small contractor makes. It is modest considering the hours they spend on the job. They arrive early and stay late, day in and day out. They find the work, train the laborers, keep the books and sit down to the machines after their employees have gone home. They are their own mechanics, janitors and carpenters. Many work for years before they take an entire weekend off.

Routine Exploitation

Yet for all the contractors who can point to survival as a rationale, there are others who continue to exploit workers and run dangerous shops long after they could afford to go legal.

These are the ones who park shiny Mercedes or Lexus cars behind ramshackle buildings where their employees work hours to earn bus fare. If caught, they close up shop and disappear, owing wages, taxes and fines, only to turn up later under a different name and with a new crop of employees.

Many contractors privately say they routinely pay kickbacks to employees of clothing manufacturers, particularly the production managers who have the power to determine which contractors get work.

June Park (not her real name) is a Korean American who operates a legitimate shop in Los Angeles--except that she pays kickbacks to production managers and sometimes to auditors and quality control inspectors.

“They wouldn’t use me if I didn’t pay these kickbacks,” Park said.

Korean Americans are now the largest ethnic group of contractors in Southern California, accounting for perhaps one-fifth of all registered owners. The vast majority of laborers are Latinos.

Like many Korean American apparel contractors, J. Kim of Los Angeles did not plan to make a living in the garment industry. He and his wife, both college graduates and professionals in South Korea, emigrated to the United States 15 years ago. He had an ambition to be a professor, and she was to stay at home to take care of their three children.

“We imagined America as a Garden of Eden,” Kim said.

But with English as the principle barrier, they found limits to their job opportunities. He became a real estate broker, and his wife found work as a sewer for a Korean contractor. After a year, they put $20,000 of their life savings into 20 sewing machines and opened up a small shop in Los Angeles.

One way he contended with growing competition was to move away from sewing basic shirts and pants to more complicated patterns such as dresses and suits, where he could get better prices. Kim says 1987 was his best year: His shop had a profit of $70,000.

But these days, he says, he is lucky to break even. He has drawn $80,000 on his credit cards.

In his cluttered shop on the top floor of one of the honeycomb-like buildings in the garment district, Kim pointed to a dress for which he is getting $10 for sewing and finishing. That is the same price as five years ago, he said.

Kim pays $3,000 a month for 4,000 square feet of space. And he is five months behind on rent. But so are most of the other garment tenants there, he said.

“One guy disappeared in the middle of the night,” he said, and the landlord seized his sewing equipment.

Kim hopes that these tough times will winnow the industry, reducing the number of underground and legitimate contractors so supply and demand are more balanced. And he predicts that much of the work that has shifted recently to Mexico will return to Southern California because, he believes, the quality here is better.

“Even though it’s slow now,” he said, “like the clothes, the seasons change.”

Times staff writers Don Lee, Patrick Lee and George White also contributed to this story.