THE LABOR DEPARTMENT is trying to unravel the snarled problem of whether people should be allowed to work in their homes knitting, creweling and otherwise fabricating garments for sale. For 40 years such cottage industry has been banned as the result of previous exploitation of homeworkers in the apparel industries.

The homeworker issue came back to public attention about a year ago when the Labor Department moved in on a group of women happily knitting ski caps in their snowbound Vermont homes. Stopping this arrangement seemed like such a bad deal for everyone involved--the women with their tidy incomes, the company with its nice profit and the skiers with their colorful caps and warm ears--that the Labor Department decided to reopen the issue.

Labor Secretary Ray Donovan initially decided to lift the ban entirely. When the garment unions and reputable manufacturers forcefully reminded him that the days of garment worker exploitation were far from over, the secretary hastily changed his mind. After a few months of additional thought, his department has spoken again. Starting Nov. 9, it decided, homeworkers will be allowed to knit--but not to sew or make any of the other things produced in the six industries that will still be covered by the ban.

This seems like more of a cop-out than a compromise. The knitters are a vocal group, and the department's hearings didn't uncover evidence of widespread exploitation among them. But there is nothing intrinsic to the knitting of outerwear that makes it immune from the sort of abuse that flourishes illegally in other apparel operations in many large cities. Just because things are OK in Vermont and Minnesota doesn't mean that they will be so in the other areas to which home knitting may now spread. On the other hand, it is also possible that with adequate controls many shut-ins and people in remote areas might be gainfully employed in some of the still forbidden trades.

What is really needed is a sensible certification program for reputable companies. The program would require that piece rates be established that do not unfairly undercut factory pay and benefits. It would not, however, worry excessively about whether workers dawdled on the job as long as they got a fair price for their product; and if, as the unions worry, the "sanitation facilities" in their homes don't meet factory standards, that seems like more of a concern for housing authorities than for labor regulators.

Running a certification program would, however, require workers. Secretary Donovan, who is planning massive layoffs in his department, doesn't have enough workers even now to enforce the current ban or police the much more severe problem of sweatshops in the cities. That's too bad both for the people who might have had decent jobs in their homes and for those who will continue to be exploited by indecent employers.