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GLOBALIZATION, WAGES, AND THE QUALITY OF JOBS: FIVE COUNTRY STUDIES
FDI and Economic Security
The decline in wages following a takeover by a foreign firm, discussed above, is one of the forces that may be eroding a sense of security among workers in a globalizing economy. Scheve and Slaughter (2004) note that capital mobility may make the demand for labor more elastic and may also increase uncertainty in employment or wage outcomes. Empirical analysis from the United Kingdom during the 1990s finds that increased FDI activity is positively correlated with worker perceptions of insecurity. Similarly, three studies find job security with foreign-owned firms is lower than with domestically owned firms. In these studies, job insecurity arises because foreign-owned firms are more likely to shut down and relocate. See Bernard and Jensen (2007) in their study of the United States and Bernard and Sjoholm (2003) in their study of Indonesia. Harrison and Scorse (2004) also find an increased probability of shutdown by exporters in Indonesia, particularly in the textiles, footwear, and apparel industries. Export Processing Zones
EPZs have grown rapidly over the last 30 years. According to the ILO (2003), 25 countries had EPZs in 1975; 116 countries had such zones in 2002, employing 13 million workers. EPZs particularly focus on the production of labor-intensive consumer goods such as clothing. EPZs are generally found to benefit the host economy through increased foreign exchange and total employment (Jayanthakumaran 2003). There may also be spillovers to the larger economy in the form of learning, human capital formation, and demonstration effects (Johansson and Nilsson 1997). Typically, wages are lower in EPZs than in the host economy in general. This effect, however, appears to simply reflect broader gender discrimination within the host economy (Madani 1999). The issue of challenging working conditions in EPZs arises from longer work hours, a more grueling pace of work, and the absence of a right to collective bargaining (ILO 2003). Cling, Razafindrakoto, and Roubaud (2005) document the remarkable impact of the Zone Franche in Madagascar. They argue that this zone accounted for nearly threefourths of Madagascar’s goods exports for 1991–2001, making Madagascar the second largest exporter of clothing in Sub-Saharan Africa. The zone’s export performance allowed Madagascar to reduce its heavy reliance on exports of agricultural products such as coffee, vanilla, cloves, and shrimp. Employment mirrored the export expansion. Between 1995 and 2001, employment in the zone rose from 3 percent to 10 percent of total employment. One-third of all private formal workers are now employed in the zone. Cling, Razafindrakoto, and Roubaud (2007) reexamine wages and working conditions in the Zone Franche following the end of the Multifibre Arrangement (MFA; as reported in chapter 1 of this volume). Wages for zone workers declined relative to industrial wages in the formal, private sector, though they remain above wages in the informal sector. Furthermore, hours of work increased and benefits such as medical services and paid holidays were reduced. This turn of events provides some evidence that workers in the zone had captured some of the economic rents associated with the MFA. Less rigorous analysis reaches similar conclusions to those of Cling, Razafindrakoto, and Roubaud (2005). Jayanthakumaran (2003) takes a cost-benefit approach to assessing the value of EPZs. According to his line of reasoning, an EPZ generates a social benefit only if the payment to local factors of production exceeds the opportunity cost of employment