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Job Quality, FDI and Institutions in Sub-Saharan Africa: Evidence from Firm-Level Data

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Abstract

Using a unique sample of foreign-owned and domestic firms in Sub-Saharan Africa, we study the differences in the quality of jobs that they offer, and identify how these differences are associated with country-level institutional factors. We find that foreign-owned firms offer more stable and secure jobs than domestic firms, as evidenced by their higher and lower shares of permanent full-time and temporary employment, respectively. The job stability and security advantage of foreign-owned firms is smaller in countries with higher firing costs and better governance, where domestic firms are likely to offer more stable and secure jobs. In addition, foreign-owned firms are less likely to offer unpaid work and have a lower share of these workers. They also have a higher average training intensity and pay higher wages to different types of workers. The wage premia of foreign-owned firms are lower in countries with higher governance and social policy standards, where domestic firms are likely to pay higher wages. Finally, we show that the job quality advantage of foreign-owned firms depends on the location of their parents, the mode of their establishment, their main business purpose and the most critical investment incentive received from the host country.

Résumé

Utilisant un échantillon unique d'entreprises étrangères et nationales en Afrique subsaharienne, nous étudions les différences de qualité des emplois offerts et identifions comment sont-elles associées à des facteurs institutionnels propres aux pays. Nous trouvons que les entreprises étrangères offrent des emplois plus stables et plus sûrs que les entreprises nationales, comme en témoigne leurs parts supérieures en emplois permanents à temps plein et inférieures en emploi temporaires respectivement. Les avantages en matière de stabilité et sécurité de l’emploi des entreprises étrangères sont moindres dans les pays à coûts de licenciement plus élevés et une meilleure gouvernance, où les entreprises nationales sont susceptibles d'offrir plus d’emplois stables et sûrs. En outre, les entreprises étrangères sont moins susceptibles d’offrir des emplois non rémunérés et leur proportion de ce type de travailleurs est plus faible. L’intensité de leur formation moyenne et les salaires qu’elles payent aux différents types de travailleurs sontégalement plus élevés. Les primes de salaire des entreprises étrangères sont plus faibles dans les pays ayant une meilleure qualité de la gouvernance et de la politique sociale, où les entreprises nationales sont susceptibles de payer des salaires plus élevés. Enfin, nous montrons que l’avantage des entreprises étrangères en matière de qualité du travail dépend de la localisation de leurs société-mères, leur mode d’établissement, leur principal objectif commercial et l'incitation à l'investissement la plus décisive reçue du pays hôte.

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Notes

  1. Employment stability refers to the duration of a typical match between an employer and an employee. It depends on voluntary job change (e.g. quit) or involuntary job change (e.g. layoff). Employment security refers to the prevention from involuntary job change. Put differently, it refers to the ability of a worker to retain a desirable job (Valletta 1999).

  2. Some attempts have been made in this direction with the use of the same data as ours, but the analyses are confined to a relatively narrow set of job quantity and quality measures, namely, total employment, foreign employment, and wages (Coniglio et al. 2015; Foster-McGregor et al. 2015; Coniglio et al. 2016). Also, none of these studies looks into the association of different aspects of foreign ownership with measures of job quality or the association of country-level institutional factors with the differences in job quality between foreign-owned and domestic firms. Finally, these studies, contrary to our approach, treat managerial workers and clerical workers as homogeneous by labeling them as “white-collar” and lumping their employment levels and wages together.

  3. Despite the relatively large share of own-account workers under informal employment, 32.9% of the region’s workers in 2015 were in wage and salaried employment (ILO Trends Econometric Models, April 2016). Hence, the type of employment covered by the survey represents a significant fraction of the region’s workforce.

  4. Although all firms in the sample are formally registered, the share of firms which offer unpaid work is not negligible, as it amounts to 9.3%. Among foreign-owned firms, 6.7% of these offer unpaid work, while the corresponding share among domestic firms is 10.8%. Unpaid work in the formal sector is usually offered to family members or apprentices. The data, however, do not allow us to distinguish between unpaid work offered to family and non-family members or to apprentices and non-apprentices.

  5. For evidence on the greater investment in training of foreign-owned firms, see, among others, Gershenberg (1987), Filer et al. (1995), World Bank (1997), and Barthel et al. (2011). For evidence on wage premia of foreign-owned firms, see, among others, te Velde and Morrissey (2003), Strobl and Thornton (2004), Lipsey and Sjöholm (2004), Sjöholm and Lipsey (2006), Coniglio et al. (2015), Foster-McGregor et al. (2015), and Orefice et al. (2019).

  6. For details concerning the design and implementation of the survey, see UNIDO (2011).

  7. This definition is in line with the IMF Balance of Payments and International Investment Position Compilation Guide (BPM6 CG).

  8. While information on the foreign ownership status is available for all firms in the sample, information on the variables capturing different aspects of foreign ownership is missing for some foreign-owned firms. In unreported tables, we ensure that the missing information of these variables does not bias the relevant econometric results. In particular, we show that estimations including the foreign ownership dummy produce very similar results regardless of these being made on the full sample or on samples that exclude the foreign-owned firms for which information on different aspects of foreign ownership is missing.

  9. In this ratio, the total number of workers is the sum of permanent full-time, temporary, part-time and unpaid workers.

  10. This ratio is just a proxy for the average wage. While the total wage bill includes supplementary benefits which are given only to permanent full-time workers, it also includes the wages for temporary and part-time workers. However, when temporary and part-time workers are added to the denominator, this ratio is identical to the benchmark for 5621 out of the 6497 observations.

  11. Hence, labour productivity may pick up any job quality effects of favourable business conditions that are granted to foreign-owned firms through investment agreements.

  12. The MNE Declaration refers to the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy and was adopted by the constituents of the International Labour Organization in 2006. It provides guidance to enterprises on social policy and inclusive, responsible and sustainable workplace practices (ILO 2006).

  13. In tables that are available upon request, we show that these results remain largely unchanged when solely China or when both China and India are excluded from the group of low-/middle-income countries outside Sub-Saharan Africa.

  14. Note that this exercise cannot be applied to firms in other sectors of the economy (e.g. agriculture, mining, EGW supply and construction) due to the relatively low number of observations for these samples. Hence, we cannot make an exhaustive analysis on whether the main results are sector-specific.

  15. In addition to the OLS estimations, we estimate all employment share and unpaid work share regressions of this part of the empirical analysis by tobit in order to ensure that the relevant results are not biased by the presence of zeros in the dependent variables. The results tables are available upon request.

  16. Taking exponents of the coefficient of the foreign ownership dummy, we find that foreign-owned firms have a higher average training intensity by 11.52% (\(100 * (exp(0.109) - 1) = 11.52\%\)).

  17. In tables that are available upon request, we show that the results on the association of average training intensity with the dummies for the parent location are largely unchanged when solely China or when both China and India are excluded from the group of non-SSA low-/middle-income countries.

  18. Taking exponents of the coefficient of the foreign ownership dummy, we find that foreign-owned firms pay an average wage premium of 23.1% (\(100 * (exp(0.208) - 1) = 23.1\%\)), a wage premium to production workers of 12.8% (\(100 * (exp(0.12) - 1) = 12.8\%\)), a wage premium to non-production workers of 17.6% (\(100 * (exp(0.162) - 1) = 17.6\%\)), and a wage premium to managerial workers of 25.7% (\(100 * (exp(0.229) - 1) = 25.7\%\)). Also, when we drop from the sample all domestic firms which are not multinationals and therefore, compare the wages paid by foreign and domestic MNEs, we find no statistically significant differences in the average wage and in the wages paid to non-production and managerial workers. Foreign MNEs pay a wage premium only to production workers. These results are available upon request.

  19. For a survey of the empirical literature on labour mobility across firms and knowledge spillovers, see Görg and Greenaway (2004).

  20. If patents or other intellectual property rights could perfectly protect knowledge and ideas from being expropriated, labour mobility would not be a concern of entrepreneurs. Except for the wage premium as a disincentive for labour mobility across firms, firm owners design special labour contracts and incentive pay programmes for their employees such as profit-sharing agreements and long-term stock options (Balkin and Gomez-Mejia 1985; Møen 2005).

  21. UNLTC (1993) reports that knowledgeable foreign workers employed by foreign-owned firms are gradually replaced by local workers who have been trained by them in the meanwhile. In addition, Møen (2005) finds that technical employees in R&D-intensive firms pay for the human capital that they develop by accepting lower wages early in their career. They are later paid higher wages as a compensation for their investment in human capital at earlier stages.

  22. We obtain very similar results when we exclude solely China or both China and India from the group of low-/middle-income countries outside Sub-Saharan Africa. The results are available upon request.

  23. We obtain very similar results when we interact the dummy for foreign ownership with a variable capturing the rule of law, which is one of the 14 sub-categories of the overall index of governance quality and is also provided by the Mo Ibrahim Foundation (Panel A of Online Table A21). Similar to the governance quality measure, it ranges between 0 and 100, with higher values indicating stronger rule of law in the host country.

  24. The social protection measure serves as an alternative proxy for social policy standards in the host country. It is developed by the World Bank’s WDI and ranges between 1 and 6. Its higher values indicate higher social protection. From estimations where we interact the dummy for foreign ownership with the social protection index, we find that the wage premium for managerial workers is lower in countries with higher social protection (Panel B of Online Table A21).

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Acknowledgements

We are grateful to the Editor, John Rand, and one anonymous referee for very insightful comments and suggestions. We also thank for helpful discussions Jeronim Capaldo, Marva Corley-Coulibaly, Elizabeth Echeverría Manrique, Ekkehard Ernst, Mara Grasseni, Takaaki Kizu, Gianluca Orefice, Daniel Samaan, Pelin Sekerler Richiardi, Zheng Wang and Maurizio Zanardi, as well as participants in the Oxford CSAE 2017 conference, the International Labour Process 2017 conference, the InsTED/Sao Paulo School of Economics 2017 workshop, the ITSG 2017, the CRETE 2017, the ETSG 2017, the EALE 2017, and the TMT4Africa 2018.

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The views expressed here are those of the authors and do not necessarily reflect the views of the institutions they are affiliated with.

Funding

Sotiris Blanas gratefully acknowledges financial support from the Research Department of the International Labour Organization (ILO) under the external collaboration Contract No: 40168089/0.

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  1. Economics and Research Department, National Bank of Belgium, Boulevard de Berlaimont 14, 1000, Brussels, Belgium

    Sotiris Blanas

  2. United Nations Industrial Development Organization (UNIDO), Vienna, Austria

    Adnan Seric

  3. International Labour Organization (ILO), Geneva, Switzerland

    Christian Viegelahn

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Blanas, S., Seric, A. & Viegelahn, C. Job Quality, FDI and Institutions in Sub-Saharan Africa: Evidence from Firm-Level Data. Eur J Dev Res 31, 1287–1317 (2019). https://doi.org/10.1057/s41287-019-00211-9

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