Labor in Global Value Chains

Interim Report

Edited by Hitoshi Sato

Published in March 2017
chapter 1

This study examines how the development of international production networks and global value chains (GVCs) would benefit labor. The estimation based on international input-output tables confirms an increasing labor involvement in GVCs. We intensively review the existing studies on the gains from the internationalization of firms and labor market consequences from (i) productivity, (ii) wage premium, (iii) job volatility, and (iv) labor protection. There is ample evidence suggesting that firms in developing countries can gain from participating in GVCs, which implies that workers also can (at least partially) gain from GVCs. The evidence to support popular concerns about GVCs, such as trapped in low-value added tasks, and races to the bottom in labor standards, is scant.

chapter 2

Production fragmentation has become a global trend in recent decades, especially in East Asia. Observers now believe that participating in global value chains (GVCs) is crucial for a country’s successful economic development. We consider the potential mechanism of the GVC participation of firms, especially emphasizing the role of human resource management (HRM). For this purpose, we overviews two strands of existing literature: (i) the relation between management practices and productivity and (ii) the internationalization of firms. We also briefly review the internationalization of Vietnamese firms and their challenges, as a case study.

chapter 3

This study examines the role of management practices in the internationalization of domestic firms through directly exporting and/or supplying to local affiliates of multinationals. An original survey of manufacturing firms in Vietnam was conducted, investigating their management practices such as human resource management and internationalization status. The survey results shed light on similarities and dissimilarities among firms in several dimensions of management practices. We found that internationalised firms tended to be more enthusiastic about the formal training of production workers, the modernisation of production and operation, and product and process innovation. Differences in skills and experience requirements for newly employed managers were less recognisable, but internationalised firms tended to have managers who studied overseas. Furthermore, the use of public support to employee training, teamwork in production, and unionisation of employees did not show a significant difference between internationalized and non-internationalized firms.

chapter 4

This interim report proposes an empirical research plan that aims to investigate the causal impacts of trade on people’s work ethic. I explain possible contributions of the study and related literature, hypothesized mechanism, empirical strategy, data sources, some preliminary estimation results, and various issues left for next year. The final output of this proposed study will be completed by the end of FY2017.

chapter 5

This study addresses the question of whether labor clauses in RTAs are effective to prevent the domestic labor standards in RTA signatory countries from deterioration. Empirically analyses are conducted for two measures of labor standards: statutory minimum wages and the strictness of employment protection. The impacts of RTA with and without labor clauses and the importance of the RTA partners in a country’s trade are estimated using the RTA classification presented by Kamata (2016) and data on minimum wages and employment protection for a wide variety of countries for multiple years. The results show that labor-clause-noninclusive RTAs with more and/or larger trading partners are associated with lower statutory minimum wages while that association is not estimated for labor-clause-inclusive RTAs. Furthermore, estimation with separate samples in terms of the income groups of RTA partners clarifies that the estimation results are chiefly driven by middle-income countries that sign RTAs with high-income partners. This may indicate that signing RTAs with more and/or larger high-income trading partners would create to the governments of middle-income countries that have comparative advantage over the high-income partners in labor-intensive sectors a downward policy pressure on minimum wages, while labor clauses could alleviate such negative policy impacts on minimum wages in middle-income countries. This result is also an interesting contrast with the result in the preceding study (Kamata, 2016) in which no systematic relationship is found between RTA-partner trade concentration and actual labor earnings regardless of whether or not RTAs have labor provisions. On the other hand, no evidence is found for the impacts of RTA with or without labor clauses on the strictness of employment protection.