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GLOBALIZATION, WAGES, AND THE QUALITY OF JOBS: FIVE COUNTRY STUDIES
(2001) and Frundt (1998). The deeper question, though, is whether this frenzied response actually improves working conditions and economic efficiency. Schrank (2006) argues that pressure on the Dominican Republic to improve its working conditions succeeded by stimulating human resource upgrading. Skill upgrading then also facilitated the transition to more sophisticated production systems. The Dominican Republic responded to U.S. demands by (i) adopting a new labor code in 1992 that protected the rights to organize, strike, and receive a just wage; (ii) developing capacity to enforce new labor protections; and (iii) developing a fully professional set of inspectors trained to help employers comply with the law by engaging in human resource development and employing best practices relating to labor management. These training programs were paid for with a training tax imposed on firms in the EPZs. Based on interviews with industry managers, training for line workers and middle managers helped the apparel factories transition from linear to modular production systems. Industry developed more generally as newly trained workers and managers were subsequently able to enter more sophisticated product markets such as consumer electronics, information technology, and services. Perhaps the most intriguing trade policy–related intervention concerning labor practices is the U.S.-Cambodia Textiles Agreement/ILO Better Factories Cambodia project. Polaski (2004) describes the Cambodian experiment in which the Cambodian government, the U.S. government, the ILO, NGOs, and apparel retailers partnered to expand markets for apparel factories with responsible labor management practices. Cambodia’s apparel quota allocation under the MFA was linked to ILO reports on working conditions. Under the U.S.-Cambodia agreement, Cambodia received a basic quota allocation. The Cambodian government then required all textiles and apparel firms seeking an export license to participate in the ILO’s Better Factories Cambodia project. Factories were inspected and received recommendations on improving workplace conditions, training in workplace management, and ongoing compliance monitoring. The U.S. government then augmented Cambodia’s quotas by 9 percent in 2000 and again in 2001. In the subsequent three years (2002–04) Cambodia received quota bonuses of 9 percent, 12 percent, and 18 percent. Polaski (2006) notes that this arrangement has three distinct features. First, the incentives were positive. Cambodia received its basic quota regardless of whether workplace conditions improved. Anti-sweatshop agitation has a downside risk for workers. Workplace conditions that appall Western consumers may be an efficient equilibrium outcome for a developing-country labor market. Anti-sweatshop agitation that ultimately forces workers into employment outcomes that are worse than sweatshop employment does not make workers better off. Thus, if Cambodia calculates that improving working conditions is not efficiency enhancing, it will not suffer a negative consequence in the form of a loss of trade. Second, the system helped align national interests with individual factory interests. Factories with poor workplace conditions reflect badly on Cambodia as a source for reputation-sensitive buyers. Pressuring all Cambodian firms to improve working conditions simultaneously helps internalize this negative externality. Third, factories identified by the ILO as having violations and that did not improve conditions were entered into the ILO reporting system, with the nature of the violations fully detailed. This step provided a level of transparency not available in any of the private monitoring systems.