Abstract
This chapter investigates whether workers in less-developed countries (LDC) are winners or losers in the expanding global economy. This study is distinctive in that it looks beyond the impact of globalization on direct economic benefits to labor (employment and surplus labor) and assesses if workers simultaneously improve their bargaining power in the marketplace. I use a time-series cross-sectional panel data set for 59 developing countries from 1972 to 1997 to demonstrate that the overall impact of globalization on labor has been different in countries at various levels of economic development. These results challenge conventional wisdom by revealing that under conditions of globalization, labor in low-income countries is not necessarily in a better bargaining position despite certain economic gains. In contrast, labor in high-income countries enjoys both greater economic benefits and an improved bargaining position. The absolute “winners” in globalization ultimately comprise a small percentage of the larger labor force in the developing world.
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Notes
- 1.
Silver (2003) identifies labor’s marketplace bargaining power based on Erik O. Wright’s (2000) analysis. It refers specifically to the structural power gamed by workers based on their location in the economic system and is a direct result of tight labor markets. Silver emphasizes three forms of marketplace bargaining power: (1) the possession of scarce skills, (2) low unemployment, and (3) “the ability of workers to pull out of the labor market entirely and survive on nonwage sources of income.” She also discusses associational power, which refers to “the various forms of power that result from the formation of collective organization of workers” and another form of structural power or workplace bargaining power that results “from the strategic location of a particular group of workers within a key industrial sector.” Associational and structural bargaining powers are often positively correlated in the long run (e.g., teachers, European automobile workers).
- 2.
The edited volume by Candland and Sil (2001) is a notable exception. The case studies are limited to the experiences of five developing countries: Mexico, Brazil, India, Pakistan, and China. Silver (2003) also discusses the effects of globalization on labor, but focuses on identifying waves of labor unrest and uses the world system rather than nation states as the level of analysis.
- 3.
PLP is an index I developed to make inferences about the extent of labor’s bargaining power. I place emphasis on potential labor power since, as Silver (2003) also acknowledges, workers’ bargaining power does not automatically mean that workers will apply that power to demand greater political and economic benefits.
- 4.
Categories of low-, lower-middle, upper-middle, and high-income LDC are based on World Development Indicators 2002. Even though Greece and Mexico are also OECD countries, I included them in my LDC dataset because neither country was categorized as “high-income” for most of the time period of this study. Korea is included because it was not an OECD country until the 1990s.
- 5.
This literature emphasizes that wages and income will increase with openness as long as the LDCs are fairly rapid globalizers, have strong institutions, and good governance.
- 6.
Silver (2003) also analyzes labor and globalization, but with a different focus. Her approach centers on the interaction between global patterns of labor unrest and world political dynamics. Furthermore, globalization is considered mainly in terms of the increasing mobility of capital.
- 7.
Silver(2003) makes a good case for why Galton’s problem precludes the necessity of observing cross-national variations. Nonetheless, this argument is not supported with empirical evidence.
- 8.
Silver (2003) suggests that improvements (recessions) in marketplace bargaining power do not always translate to greater (weaker) “associational power” in the short run (see fn.l). for example, British, Chinese, and Indian textile workers in the nineteenth century. However, she concludes that “these were the exceptional cases; most commonly, associational power was not sufficiently strong to compensate for the weak structural power of workers.”
- 9.
Conversely, capitalists and skilled workers will be better able to influence government policies in more developed countries.
- 10.
Nontradable informal activities include services such as haircutting, domestic help, street vending, etc.
- 11.
Surplus labor is called “casual labor” in India.
- 12.
See, ILO (2002) for more details on growing levels of surplus labor.
- 13.
See, for example, Posusney’s (1997) analysis on labor in Egypt.
- 14.
For more details, see Baer and Herve (1966).
- 15.
The logic holds that in overpopulated countries more people are employed than needed to produce output. As long as hidden unemployment prevails, its supply to industry is unlimited in the sense that industries can expand or be created without affecting the prevailing wage (See Wellisz, 1968).
- 16.
The United Nations Economic and Social Council Commission reports that fertility has declined in many nations since the 1970s, particularly in middle-income countries.
- 17.
The labor force, which includes the employed and unemployed, is part of the formula for surplus labor.
- 18.
This can be compared to an average of 7 percent of surplus labor in OECD countries and 13 percent in the HICs.
- 19.
- 20.
- 21.
The decade dummies were dropped from the model if they were insignificant across models.
- 22.
Estimating a measure of first-order correlation (p) has the effect of making the time-series data stationary. This measure is used to transform all variables in the model according to the formula: y∗t = yt − (ρ∗yt − 1). This partial differencing reduces suspicions about spurious results, particularly the concern that the effects of potentially high degree of institutional inertia exhibited by the dependent variable are not captured.
- 23.
As a robustness check, I ran the model using total exports of goods, services, and income in place of manufactured exports. The primary results were unaffected.
- 24.
HIC interactions are excluded to avoid linear dependency.
- 25.
With globalization, both can simultaneously occur if incentives to work in the informal sector is greater than the incentive to enroll in school, and the increase in low-skill employment is drawn from the existing labor force.
- 26.
The per capita human spending is an instrumental variable (using the Lewbel procedure) in this model because of endogeneity—LDCs with large skilled labor populations are apt to invest in human capital. This variable is not included as a control for surplus labor since higher government spending on education and health in LDCs does not necessarily benefit the poor and tends to be disproportionately allocated to the middle and upper classes. See World Development 2000–2001.
- 27.
Portfolio flows in HICs are almost twice as high as flows in MICs, and almost four times the level of flows in LICs (averaged from 1972–1997).
- 28.
For a recent review of the literature that supports the hypothesis that private capital flows are more efficient in higher-income countries, see Eichengreen (2001).
- 29.
The number of ILO ratifications is arguably the weakest component of LSI, since ratification does not necessarily ensure enforcement. A detailed evaluation of the strengths and weaknesses of LSI is a subject for a future study.
- 30.
LSI closely resembles Silver’s (2003, p. 13) reference to “associational power,” or “the various forms of power that result from the formation of collective organization of workers” (most important, trade unions and political parties). The comparisons in Table 15 and Chart 1 suggest that marketplace bargaining power and associational power are closely related.
- 31.
LSI and PLP also differ in some of the African cases where LSI tends to be higher than PLP (Ghana and Mali). The reason is because data availability for all four components of LSI is apt to be scarce in these countries, biasing these scores upward. See McGuire (1999, p. 12).
- 32.
Yap (2003) for instance, discusses “credible apologies” that East Asian governments make to labor. They may dismiss, demote, or replace certain government officials deemed responsible for the policies that “hurt” labor, downsize or eliminate the relevant agency, or offer reparations. Representatives from academia, labor, or business also may be invited in to review, evaluate, or oversee changes to government.
- 33.
For example. Yap (2003) draws from Bates (1981) and argues that labor can withdraw economic resources (e.g., alter their production mix, engage in the black market) to protest the government’s economic policies. In reference to workers in Thailand, Brown (2004) discusses the importance of taking account of industrial workers and their organization as potential political actors. He argues that “even when labor is invisible, in the sense of not being a public, organized actor overtly engaged in formal political processes, the politics of the working class is nonetheless there and is significant. For, behind the scenes, there has been a continual jockeying to channel and control workers and their struggles. This is to ensure that they either do not emerge as a public, organized force, or if they do, they are organized in a manner that is in keeping with the broader economic, ideological, and political interests of those dominating contests for state power” (Brown, 2004, p. 133).
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The author is grateful to Hayward Alker for valuable advice and input on this research project and James McGuire for generously providing access to his data. The SC1D editors and anonymous reviewers also provided extremely helpful feedback and comments.
Appendices
Appendix 1
Appendix 2
Assessing PLP
Few efforts have been made to measure and compare labor power across developing countries over time. Union density is the most commonly used cross-national indicator of labor power. As noted earlier, union density is more appropriately applied in the developed world than in the LDCs. Most LDCs are still far from attaining strong and independent unions. Even in LDCs with relatively high union density, labor is rife with collective action problems and often subject to a broad range of government controls.
Given the unreliability of direct organizational measures, as Encarnation’s analysis suggests, alternative assessments of labor’s bargaining power tend to be tautological (Encarnation, 1989). According to Encarnation, bargaining power is generally defined by the outcome, making it difficult to tell which party had more bargaining power if negotiations are “won by those who win.” It is virtually impossible to differentiate between power and negotiated outcomes using this approach. Encarnation (1989, p. 20) concludes that bargaining power must refer to the ability of laborers to “improve the range of plausible outcomes available to each [negotiator], and to improve the probability of securing the outcome that each prefers.”
The measure of PLP used in this analysis attempts to avoid the tautology problem. It does so by acquiring some sense of labor’s propensity for collection action rather than collective action per se. After all, since labor discontent can be costly for political leaders (and workers), governments often respond to labor demands before strikes or other militant actions occur. Offe and Wiesenthal (1985) argue that in such circumstances “the organization then has become strong enough to derive some power (i.e., control over its environment) from its recognized potential of power. In other words, concessions are likely to be made not because members have struck, but in order to avoid a strike.”
To assess whether PLP serves as an indirect measure of labor’s political power, additional steps must be taken. Comparing PLP to other nontautological assessments of labor’s bargaining power is the most precise way to accomplish this. McGuire’s (1999) labor strength index (LSI) represents the only other effort to assess the “real” magnitude of labor’s bargaining power in LDCs and compare it across countries. Because of data limitations, it represents only one period of time (the 1990s). LSI is based on four dimensions: (1) union membership as a percent of the nonagricultural labor force; (2) proportion of formal-sector workers covered by collective contracts; (3) level of collective bargaining power—national/sectoral, enterprise, or both; (4) number of major International Labour Organization conventions ratified.Footnote 29 This is a multifaceted attempt to capture several important dimensions of labor strength that are not directly measured by PLP.
The comparison of PLP and LSI in Table 15 significantly increases confidence in the PLP’s reliability as an indicator of labor’s bargaining power. The correlation coefficient, excluding the outliers, is 0.61 (see Chart 1). The correlation is actually higher than expected since LSI includes unionization data (and its inherent weaknesses), and because PLP captures some important nontraditional sources of labor’s bargaining power.Footnote 30
PLP and LSI. (*Note that some of the countries were dropped from the graph to reduce clustering)
For most cases, the PLP rankings are similar to LSI, and it is primarily the East Asian cases, for example, Singapore, Korea, Malaysia, and Thailand that show the most contrast. Their PLP score is “high,” which contradicts conventional wisdom on labor in these nations.Footnote 31 Yet the PLP scores are consistent with more recent analyses by Yap (2003) and Brown (2004), which bring important new insights on labor in the East Asian countries and explain why labor’s political influence in these authoritarian nations has been commonly misinterpreted.
According to both Yap and Brown, workers in these nations have been in a relatively unique position in the developing world because of the central economic role they have played in the nations’ development. Repressive labor strategies have been part of the East Asian nations’ export-oriented industrialization strategy for economic development. Yet paradoxically, precisely because of this dependence on labor, the state has had to accommodate labor in different ways.Footnote 32 Labor’s collective political consciousness has thereby evolved differently in these countries while the more familiar signs of political power (e.g., strikes, unionization, centralization of bargaining power) have been conspicuously absent.Footnote 33 As Young (2004) argues, “in studies … where the forms of consciousness and organization are found not to conform to these [familiar] expectations, labor is deemed to be ‘weak’ or ‘immature,’ and seen to be peripheral to the development of state, society and the economy…. The outcome may not conform to very generalized theoretical expectations, but that calls for re-evaluation and refinement of theory, rather than a dismissal of the significance of working class struggles.” One important advancement of the PLP indicator is that it can approximate labor movements that do not develop the familiar institutional forms.
The indicator applied in this study, PLP, offers three broad advantages: (1) it corresponds to conditions specific to the bargaining power of labor in developing countries; (2) it is comparable across LDCs; and (3) it has a time-series component that can capture the dynamic aspects of bargaining power. The first advantage is important because the logic of PLP is based on the particular circumstances faced by labor in LDCs. Desirability of the second two characteristics is more obvious. A standardized measure available over time and across countries greatly reduces the biases that can affect empirical analyses of labor in the developing world.
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Rudra, N. (2022). Are Workers in the Developing World Winners or Losers in the Current Era of Globalization?. In: Goulart, P., Ramos, R., Ferrittu, G. (eds) Global Labour in Distress, Volume I. Palgrave Readers in Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-89258-6_13
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