Trade and Employment From Myths to Facts - International Labour ...

Chapter 2: New evidence on trade and employment: An overview
Much of the media has focused its attention on the exploitation of children
by multinationals and their abysmal working conditions. 19 According to Edmonds
and Pavcnik (2005a, 2005b), the ILO estimates the proportion of children who
work at 18 per cent, with the majority clustered in low-income countries, mostly
Asia and sub-Saharan Africa. However, less than 3 per cent of children aged 4-15
work outside the home, so child workers are typically engaged in the economic activities
of their parents, usually related to agriculture. Additionally, although working
children devote considerable time to employment, an average of 16 hours per week,
many still attend school. However, working has consequences for total completed
schooling, and longer hours worked in particular leads to dramatic decreases in
total educational attainment. In two related papers, Edmonds and Pavcnik (2005a,
2005b) and Edmonds, Pavcnik and Topalova (2008) find that poverty is the primary
determinant of child labour. The implication is that if trade liberalization can reduce
poverty, then trade liberalization can also reduce the incidence of child labour.
Edmonds and Pavcnik (2005a, 2005b) show that because most households in Viet
Nam are net exporters of rice, the liberalization of the rice sector that increased
the price of rice increased household income and reduced child labour. To conclude,
the authors emphasize the importance of the negative relationship between living
standards and child labour.
Until very recently, the bulk of offshoring has been led by developed
economies. In a chapter on trade and foreign direct investment, Harrison and
Rodríguez-Clare (2010) review the literature on the impact of FDI on factor markets
in developing countries. They report that almost all studies find that workers in
foreign firms are paid higher wages, presumably because labour markets in developing
countries are not perfectly competitive and because foreign firms tend to be
more productive. Before controlling for firm and worker characteristics, the wage
gap tends to be large. For example, Martins and Esteves (2007) report a wage gap
of 50 per cent for Brazil, and Earle and Telegdy (2007) report a wage gap of 40 per
cent for Hungary.
However, these wage gaps can be due to other factors. For example, if foreign
firms attract more productive workers, then it would be reasonable to expect that
these workers would demand higher wages to compensate for their higher productivity.
In that case, the wage gap between wages in foreign and domestic firms
would be explained by differences in the characteristics of the type of workers they
hire. This seems to be the case; after controlling for firm and worker characteristics,
the wage premium paid by foreign firms drops significantly. For example, Martins
and Esteves (2007) follow workers who move to or leave foreign enterprises using
a matched worker and firm panel data set for Brazil for the period 1995-99. They
find that workers moving from foreign to domestic firms typically take wage cuts,
while those that move from domestic to foreign firms experience wage gains.
However, the wage differences are relatively small ranging from 3 to 7 per cent.
19 See, for example, the 2009 article by CNN’s Olivia Sterns, available at:
http://edition.cnn.com/2009/HEALTH/09/25/child.tobacco.picking/index.html.
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