1. OVERVIEW
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The low-income countries reviewed in this book primarily experience globalization as an influx of FDI seeking to export. Low income levels in the country make producing for foreign markets relatively more attractive than selling in the domestic market because demand is higher in foreign markets and domestic wages are lower than elsewhere in the world. The influx of foreign investment seeking export opportunities increases the demand for workers in the industries in which FDI is concentrated. In developing countries, these workers typically come from the agricultural or the informal nonfarm sectors. In this sense, the changes that are brought about through the influx of FDI producing for export are similar to broad patterns of economic development. The movement from agriculture to industry is a well-documented accompaniment to development. Figure 1.1, taken from Chenery and Taylor (1968), shows the development path of a number of industrial countries. The decline in agriculture with the growth in industry is also evident in the cross-section, as shown in figure 1.2. Whether these changes have an impact on working conditions depends on how working conditions are defined, and whether working conditions differ systematically across sectors.
WORKING CONDITIONS: SELECTING THE MOST RELEVANT DIMENSIONS OF JOB QUALITY Defining working conditions is important but difficult because jobs have many different characteristics. The main way to measure the quality of jobs is through the wage rate. Alternatively, job characteristics can be taken into account. To help identify the job characteristics that are relevant to a particular country, the framework chapter (chapter 3) explores the various definitions of working conditions. Because wage data are much easier to find than measurements of nonwage working conditions, most country studies can have a reliable and internationally comparable wage component. The data for other aspects of working conditions (benefits, air quality, noise, unionization, among many others) are scarce and generally not comparable across countries. From a theoretical perspective, the relationship between wages and nonwage working conditions could be positive or negative. Using wages as a measure of working conditions, however, poses potential problems if workers receive higher wages as compensation for working in poor conditions. This is certainly the case, even in developed countries, in dangerous industries, such as mining. Since Adam Smith, economists have theorized that workers who take jobs in less favorable conditions must be compensated with higher wages; this is commonly referred to as compensating differentials. This theory implies that workers in developing countries who accept jobs with less favorable working conditions would earn higher than average wages. Empirical evidence on the compensating differentials hypothesis has been surprisingly mixed. Villanueva (2007), Viscusi and Moore (1991), and Cousineau, Lacroix, and Girard (1992) find a positive relationship between risk and wages, while Dorman and Hagstrom (1998) find little, if any, evidence for compensating differentials for risk. Hersch (1998) finds strong evidence of compensating differentials for risk for women, but a negative relationship between risk and wages for white males. Studies in developing countries, such as Moll (1993) for South Africa and Arbache (2001) in Brazil, reject the compensating differentials hypothesis. Daniel and Sofer (1998) find a negative relationship between wages and good working conditions in France, but a positive link for unionized workers there.