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GLOBALIZATION, WAGES, AND THE QUALITY OF JOBS: FIVE COUNTRY STUDIES
Although the economics literature on IIWDs suggests that they are “remarkably stable” over time (especially in developed countries), the last two columns of table 7.6 show important changes in wage differentials since 1991. In particular, the negative unadjusted differential in textiles, apparel, leather is now much closer to zero. More important, however, the adjusted differential is positive and significant. The adjusted wage differential (coefficient estimate) for other manufacturing increases from 0.050 to 0.121. The increase in relative employment in these sectors coincided with a rise in their average wage, which suggests that the demand for these workers increased. The IIWD for workers in food agriculture also rose (but stayed negative). However, because this increase coincided with a fall in relative employment share, the changes for food agriculture are most consistent with a fall in the supply of labor. These results are consistent with the hypothesis that export-oriented FDI increased the demand for manufacturing workers and, as workers left agriculture, the supply of workers in agriculture fell. To provide an idea of how the differential has changed over the entire sample period, figure 7.7 illustrates the results by graphing the annually estimated apparel IIWD and the share in total employment of the textiles, apparel, and leather sector. The two rise together, suggesting an increase in demand for these workers, which seems to have resulted in a rising wage premium as the sector has expanded.
WAGE DIFFERENTIALS AND FOREIGN DIRECT INVESTMENT Ideally, an analysis would formally test the hypothesis that the wage differentials are related to globalization measures. One problem in the Indonesian case is that the main
.1
.09
.08 .08 .06 .07
.04 .02
.06
0 .05 –.02 .04
–.04 1991
1993
textiles, apparel, and leather employment share
textiles, apparel, and leather wage premium (%)
FIGURE 7.7 Apparel Sector Employment Share and Wage Premium, Indonesia, 1991–2004
1995
1997 1999 2001 2003 year textiles, apparel, and leather wage premium (%) textiles, apparel, and leather employment share
SOURCE: Authors’ calculations based on SAKERNAS, various years. NOTE: The textile wage premium is the percentage difference from the overall mean wage, as described in the text.