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GLOBALIZATION, WAGES, AND THE QUALITY OF JOBS: FIVE COUNTRY STUDIES
variation in tariff changes is not a significant determinant of the probability of employment in the informal sector after controlling for individual worker characteristics. In contrast, Goldberg and Pavcnik (2005) find that trade liberalization was accompanied by an increase in informal employment in Colombia. However, this relationship disappeared following a labor market reform that provided firms with increased flexibility in terminating workers. Thus, it appears that trade liberalization does not increase the probability of informal employment, provided there is sufficient labor market flexibility. In Colombia, the culprit was high severance payments.
LABOR PROTECTIONS AND COMPARATIVE ADVANTAGE Factors affecting labor standards can reasonably be divided into two classes: economically driven decisions at the firm level and government regulations. Governments may consider the effects on firms when setting regulations. In particular, governments may be motivated to reduce labor protections if they affect comparative advantage. The literature on the link between labor market institutions and economic performance is immense. This review is confined to those studies that directly relate to trade performance. Busse (2002) addresses the link between labor protections and trade in the context of the Heckscher-Ohlin (factor proportions) model. The impact of labor practices on comparative advantage depends on the way in which each particular practice affects the supply of unskilled relative to skilled labor. Forced labor and child labor likely expand the relative supply of unskilled workers. By contrast, discrimination in employment, particularly if the practice prohibits women from working in particular industries, may reduce the supply of labor. The impact of unions on the supply of labor is ambiguous. If the union is trying to exercise monopoly control of the supply of labor, it will reduce the supply of labor and reduce comparative advantage in labor-intensive goods. However, it is possible that the union actually helps the labor market function, improving communication between workers and employers. Any subsequent productivity improvements may enhance productivity in labor-intensive goods. Busse (2002) considers the marginal impact of various labor practices on comparative advantage. Labor force participation by females improves comparative advantage in unskilled labor–intensive goods. Weak protections against child labor and forced labor are also correlated with comparative advantage in unskilled labor–intensive goods. Countries with strong right-to-organize contexts export fewer labor-intensive goods than their labor endowment would suggest they should. The increase in the minimum wage in Indonesia during the 1990s provides an interesting opportunity to specifically assess minimum wage legislation in a developing country context. During this period, the nominal minimum wage was quadrupled, doubling in real terms. Rama (1996) and Harrison and Scorse (2004) both find little to no effect of the Indonesian legislation on employment. Harrison and Scorse (2004), in particular, argue that monopsonistic employment practices were particularly challenging in the textiles, footwear, and apparel sectors. Furthermore, they argue that globalization in general and anti-sweatshop agitation in particular may have diminished monopsonistic exploitation practices by foreign-owned and export-oriented firms. Harrison and Scorse (2004) find that by 1996, foreign-owned and export-oriented firms were more likely to be in compliance with minimum wage legislation than were