When global markets shift, firms are given new opportunities to compete, either by improving their working conditions to attract more skilled workers or by cutting costs, safety measures, and other “race-to-the-bottom” tactics. To help tip the scales in favor of upgrading, governments in developed countries often condition access to their markets upon improved human and labor rights outcomes. The rights approach, however, can be difficult in domestic political systems that have traditionally excluded organized labor or have shown little interest in improving human rights.
In this project, researchers examined how the US's 2018 tariffs on Chinese goods affected labor upgrading in foreign firms operating in Vietnam and found that certain types of firms respond significantly to changes in market opportunities, especially when they are primed to consider specific supply chain relationships. These improvements come because they are consistent with taking advantage of new opportunities and cannot be created by governments and activists—the motivation for improvement of labor conditions comes from the sector level and is tied to competition for workers caused by new opportunities, not the national government level nor for the purpose of improving labor conditions in general.
Methods and Results
The research exploited three forms of firm-level variation. First, repeated cross-sectional surveys were used to compare firms’ responses regarding their labor expenditure plans pre- and post-announcement of the Trump administration’s tariffs. Second, data on firms’ specific products and services were analyzed to determine whether respondent firms were positioned to take advantage of the new opportunity created by the increased cost of Chinese exports. Last, survey experiments randomly assigned respondents to consider transactions with either a US-based or Chinese-based global supply chain. To quantify this research design, the triple difference econometric specification was utilized.
The results suggest that the 2018 U.S. tariffs incentivized labor-related upgrading in other developing countries. Such upgrading appears motivated entirely by material opportunities: foreign-invested firms in Vietnam saw an opening to sell additional product, or more sophisticated products, to the US market. However, expanding their production and improving their product quality required access to scarce semi-skilled or skilled workers. Providing workers better wages, benefits, and conditions was seen as a way to facilitate access to a new market.
Edmund Malesky (Duke University), Layna Mosley (Princeton University)
- U.S. Agency for International Development
- Vietnam Chamber of Commerce and Industry
Economic Governance, Global Value Chains, Governance, Economic Development, Global