Harrison & Scorse (2010) Flashcards
On average multinational firms pay higher wages than domestic firms. Suggest two reasons that could explain this observation. What do these reasons imply for the goals and outcomes of anti-sweatshop campaigns? Consider both why campaigns are launched and campaigns’ possible consequences.
On average multinational firms pay higher wages than domestic firms. Two reasons.
(i) Multinationals employ more skilled workers on average.
(ii) Multinationals share some rents with their employees.\
What do these reasons imply for the goals and outcomes of anti-sweatshop campaigns? Consider both why campaigns are launched and campaigns possible consequences
- (i) consistent with competitive labour market, (ii) implies a market friction.
- Campaigns only work if there is rent sharing (otherwise exit and drop in employment)
What strategies does the paper use to identify the effects of the anti-sweatshops campaign on the Indonesian labour market? What are the limitations of these strategies?
To measure the impact of the anti-sweatshop movement, we use a difference-in-difference methodology, comparing wages before and after the advent of the campaigns. Both approaches indicate that targeted plants increased real wages in response to activist pressure. Compared to non-TFA plants, foreign-owned and exporting TFA firms increased real wages 10 to 20 percent across all of Indonesia. Comparing wage growth in districts targeted by activists relative to other districts, the effects are even larger. Real wages increased as much as 30 percent in large foreign-owned and exporting TFA plants relative to other TFA plants. Most of these wage increases are due to higher compliance with minimum wages on the part of targeted plants.
(i) difference-in-difference - Wage growth in foreign-owned plants (at least 10%) or exporters (at least 10%) in TFA plants versus foreign-owned plants or exporters in non-TFA sector.
(ii) Restrict to Adidas, Nike and Reebok
Why Indonesia?
Indonesia had more Nike contractors than any other country apart from China during this period, making them a primary target for these activists.
Limitations of +?
What conclusions about campaigns that aim to benefit workers in developing countries would you draw from the paper?
Campaigns do have a significant effect on raising wages without harming employment in the short-run.
It is important to note that the wage gains documented in this paper could be temporary. In the late 1980s and early 1990s, the TFA sector in Indonesia was booming, as suppliers from higher-cost East-Asian locations shifted operations to lower-cost locations nearby. Yet in the last ten years, footwear and apparel companies such as Nike have shifted to vendors in other low-wage countries, including China, Vietnam, and Cambodia. Vietnam has now replaced Indonesia as the second largest vendor location (after China), as measured by the number of workers employed in Nike supplier factories. While Nike continues to use Indonesian contract factories to source 20 percent of its footwear operations, this share will continue to fall if factories in Vietnam produce lower-cost and higher-quality goods.
Many research and policy questions remain unanswered. Designing anti-sweatshop campaigns in such a way as to make wage gains and better factory conditions sustainable, without endangering employment or leading plants to relocate elsewhere, is challenging. The new anti-sweatshop activism emphasizes the introduction of “living wages,” which are significantly harder to define and consequently to implement, compared to codes of conduct focused on compliance with minimum wages. Extending the type of analysis presented in this paper to other countries would also be informative.
Consider Table 1A. How should you interpret the result reported in row 5, column 9? Does this result imply the anti-sweatshops campaign led to higher wages?
- On average, the change in wages between 1990-1996 in exporting firms was 0.27 log-points higher than in non-exporting firms.
- Explanations: (i) pre-existing trends (catch-up), (ii) OVB (e.g. demand shock), (iii) campaign
- Argue that (i) and (ii) do not apply → so indeed implied anti-sweat shop campaign led to higher wages.
What evidence does the paper provide about the impact of the anti-sweatshops campaign on non-wage outcomes? What do these results imply about how wages are determined in the Indonesian labour market?
- No evidence of negative effects on employment
- Some evidence of decline in profits, investment and productivity
- Increase in exit probability for small exporters
- Improved compliance with minimum wage
[WHAT DO THE RESULT SAY ABOUT HOW WAGE IS DETERMINED IN INDONESIA?] my guess - it says employees have low bargaining power
How does the minimum wage affect employment in Indonesia? Why do you think the minimum wage and the anti-sweatshops campaign have different effects on employment?
Higher minimum wage reduces employment growth (Table 6) but campaign does not.
Possible reasons: (i) Minimum wage applies to all firms. Foreign firms and exporters are likely to be more profitable and better able to absorb wage increases through profit reductions without changing employment.
(ii) Minimum wage is (in principle) compulsory, but firms opt whether to respond to anti-sweatshops campaign. This could enable firms that cant afford to raise wages without cutting employment to choose not to raise wages because of the anti-sweatshops campaign
