Global inequalities
Contents |
The Minimum Wage in a Global Context
As the presures of globalization make povvety, justice and development look less likely for many disadvantaged communites, the need for an adeqaute minumum wage becomes stronger and stronger. If Mimimum wages are going to be effective they have to be set in relation to average earnings and it must be set in to relation to wages in other countries. Unless it is set too low it must allieviate poverty. However if the poor are not in regular employmeny then minimum wage is not going to help much. It is also needed where countries do not have a welfare system.
Reducing injustice and Developing the economy
Although some jobs are defined to as deserving less money some people are being paid due to other reasons. Racism, age, phyisical defects, immigrants. When they do get paid a minimum wage they use that money to buy other goods and service form other low paid employees.Thus increasing domestic demand.
Globalization and low pay
In developing countries there are often no minimum wage of labour standards. Japan has moved many mfgs to China. Sdvances int eechnology have allowed resourcing from developing countries. The garment industry has moved from HK, Sinagpore and South Korea to Thailand, Mexico and Indonesia. Part of this move was due to age pressure but also becuase those countries moved in to more value added products.
Many counties have large informal sectors that are not covered by legislation. Small co's or home workers. However, MNC's circumventing low pay can be overstated. Only 15% are employed in Mfg and 80% of wage pressure are factors associated with competition from low wage economies.In Advanced Countries - Increasingly moving to lower paid service industries which are often part time.
Deficiencies in minimum wage systems
Minimum wages should be adjusted often but few countries have legislation that cover any worker. In Luxemborg MW is set high and covers 16% but in Spain it is low and covers 2%. ILO offer lttle guidence on what the veles should be but it should meet the Cost of Living but in most countries it comes no where near that. In Niguragua for intance it is 33% of CoL. Women are most affected by MW legislation and compliance can be a problem. Non-compliance is 54% in Guatemala and 9% in Chile.
Govts are concerned that MW can inpact inflation and reduce employment but they could be offset by higher productivity or reduction in profits. Also higher input prices might render their goods uncompetitive but many of these jobs are i the service sector not impacted by foreign competition and often wages are a small part of the value added and stability, raw materials, infrastructure, legal protections are more important.
At the moment MW legislation can only be acted by the nation state and even Unions in some countries are sketical as they fear it will undermine collective bargaining, but should we adopt a global rate at say $1/hrs and work towards a harmonization of wages over time.
Global Labor Standards
25% of the developing world households earn less than $1 an hour . The debate centers around
- A race to the bottom
- Lack of labor standards is often seen as unfair competition
- Polanyi says better standards lead to better motivations, collaboration, information exchange and better productivity
So why dont employers adopt them if it is in their interests. It could be a focus on short term profits and results. Other argue that there are unintended consequences and could end up hurting thoese they are trying to protect - eliminating child labor could force them into Child prostitution. Raising stds in developing countries to those in developed countries is seen as disguised protectionism and the stark reality is any job is better than no job. Also raising wages may not increase domestic demand if the country has a propensity to import unless enforced globally.However evidence is developing countries have not translated to higher unemployment especially if prices, productivity and demand are adjusted appropriately. In conclusion it is not to say that it has no impact on employment just thatit does not leave workers worse off on average.
Strategies for implementation
ILO was established after WW1 and had been ratified throughout the world but not all 8 core conventions. In US only 2. ILO has been taken on by the UN. Other bodies have also developed stds such as OECD and UNCTAD. But compliance is voluntary. Sometime companies take a lead such as Levi Strauss - others have followed worried that bad comment will affect their brand.
The WTO has sought to include a social clause that would allow sanctions to be imposed on those countries breaking the clause - but again could be seen as disguised protectionism.
Commodity chain and global standards
This is the way that production sales and distribution are oragnised across borders. e.g. for a shoe mfg it is subcontractor, the brand name and the retailer. Power along the chain can vary widely but it is possible that the retailer and brand name could exert pressure to improve standards. for instance a 2%-6% in final price could increase salaries at the botteom by 100%. Eg's of companies follwing this approach include Fair Labor Association, Ethical Trading Initiative.
Fair Trade is a viable solution to this crisis, assuring consumers that the coffee we drink was purchased under fair conditions. To become Fair Trade certified, an importer must meet stringent international criteria; paying a minimum price per pound of $1.26, providing much needed credit to farmers, and providing technical assistance such as help transitioning to organic farming. Fair Trade for coffee farmers means community development, health, education, and environmental stewardship
Limitations of global labor standards
All strategies can have unforseen circumstancaes or could be thwarted so Maybe just an expansionary poikcy is needed.
Commentary
1
I think most people would agree that there is a requirement for greatly improved labor standards and the setting of minimum wage rates at a level that meets the nation’s cost of living, especially in the developing world. However, obtaining international agreement and compliance seems to me to be the greatest hurdle. We have read in the texts that workers are not necessarily working for MNC’s in these nations but as small contractors, overseas legal and illegal workers, part-time workers and home-based workers who are part of the informal sector of the economy and of course unemployed workers who are not subject to the rules. Nida makes an excellent point that developing countries cannot afford and to police compliance unless richer countries are willing to fund enforcement. And such is the nature of non-complying firms that they can be closed down and restarted under a new name almost overnight.
However, despite these obstacles we should not give up the ideal of implementing international labour standards as unrealistic but understanding the problems should enable countries to create a framework that can deal with the problem more effectively. I think, inevitably, enforceable codes get stuck in protracted international negotiations and lead to a watered down set of rules that would not meet the objectives. If enforceable codes are introduced they should be focused on one or two of the worst abuses like child labour. Therefore I think it is better to tackle this as a mixture of voluntary compliance and sanctions through a variety of organizations and strategies. This could be done through:
- 1. Better education of the rules and standards so that employers and employees understand what criteria they are expected to meet
- 2. Strengthening of Trade Unions to pressurize employers to maintain basic standards
- 3. MNC codes of conduct to source products only from contractors who meet the basic standards and pressure groups to keep MNC’s accountable.
- 4. Sanctions from the WTO for flagrant abuses of the standards (e.g. Child labour)
- 5. Continued aid to developing countries to improve education and other skills
- 6. Developing countries to develop a better welfare environment with the aim of lifting the population out of poverty.
It’s crucial for the current economy to take into accountant and apply international labour standards. I believe that social justice is without doubt, a necessity for the labour force. I also believe that the economic development of nations is based on this, and that there are more benefits than hindrances for the global trend. This is even more relevant when there is an increasing gap of inequalities between developed and developing countries such as minimum wages, standard of life, poverty, conditions of work, etc.
2
I also agree that minimum wages play a key role in the solution to social and economic crises and that they are a way in which nations can combat social dumping. This issue is clearly explained in the article by Stephens Golub, Are International Labour Standards needed to prevent social dumping? [1]
Furthermore, nowadays there is a constant threat of wage matching in developed countries and developing countries with low labour standards. This has in turn put pressure on trade unions and workers to regulate wages and conditions, engage in collective bargaining and prevent levels of unemployment rising.
This is also mentioned in The Handbook of Globalisation by Jonathan Michie; there are many differences between developed and advanced countries, few are as spectacular as the differences in wages. The low wages in developing countries are cited as one of the reasons for MNEs moving production from the advanced to the developing countries.
As a consequence of the world economy becoming more globalised, the active role of the ILO (International Labour Organisation) and international organisations is necessary as well as national governments. The ILO is the only public international organization, and the only one in the United Nations system, which is tripartite, where workers and employers enjoy equal rights with governments in representation and decision-making. [2]
Developed countries consider the seven core conventions which concern freedom of association and collective bargaining, freedom from forced labour, non-discrimination and the abolition of child labour. However in developing countries, only some consideration of minimum wages, employment guarantees and health and safety measures have been taken, because the economic and social structure is different from in other countries.
Some researchers argue that the most fundamental of these rights is the right to a voice - to organize and be heard, to be able to defend interests and to collective bargaining. It is the foundation on which other rights can be fully exercised.
It is also argued that there are some negative aspects of imposing International Labour Standards because they don’t cover all workers in relevant countries.
Moreover, international financial organisations such as the IMF and World Bank encourage governments to reduce labour costs with a view to increasing exports.
Despite this, some of the conclusions in an OECD study published in 2002 under the title International Trade and Core Labour Standard are that countries which strengthen their core labour standards can increase economic growth and efficiency by raising skills levels in the work force and by creating an environment which encourages innovation and higher productivity. [3]
Labour standards, particularly the core labour standards, contain principles that do lead to poverty reduction.
In the real world, even the most flexible labour markets require social agreement on their fairness of wages and income differentials. [4]
The current status of international labour standards
Number of ratifications
http://info.worldbank.org/etools/docs/library/75867/dc2003/proceedings/pdfpaper/standards.pdf
An international legal framework on social standards ensures a level playing field in the global economy. It helps governments and employers to avoid the temptation of lowering labour standards in the belief that this could give them a greater comparative advantage in international trade.
In many developing and transition economies a large part of the workforce is active in the informal economy. Moreover, such countries often lack the capacity to provide effective social justice. Yet international labour standards can be effective tools in these situations as well. Most standards apply to all workers, not just those working under formal work arrangements; some standards, such as those dealing with homeworkers, migrant and rural workers, and indigenous and tribal peoples, actually deal specifically with areas of the informal economy. [5]
[1] http://www.imf.org/external/pubs/ft/fandd/1997/12/pdf/golub.pdf
[2] nobelprize.org/nobel_prizes/peace/laureates/.../labour-article.html.
[3]http://info.worldbank.org/etools/docs/library/75867/dc2003/proceedings/pdfpaper/standards.pdf
[4] The Handbook of Globalisation by Jonathan Michie
3
It’s crucial for the current economy to take into accountant and apply international labour standards. I believe that social justice is without doubt, a necessity for the labour force. I also believe that the economic development of nations is based on this, and that there are more benefits than hindrances for the global trend. This is even more relevant when there is an increasing gap of inequalities between developed and developing countries such as minimum wages, standard of life, poverty, conditions of work, etc.
I also agree that minimum wages play a key role in the solution to social and economic crises and that they are a way in which nations can combat social dumping. This issue is clearly explained in the article by Stephens Golub, Are International Labour Standards needed to prevent social dumping? [1]
Furthermore, nowadays there is a constant threat of wage matching in developed countries and developing countries with low labour standards. This has in turn put pressure on trade unions and workers to regulate wages and conditions, engage in collective bargaining and prevent levels of unemployment rising.
This is also mentioned in The Handbook of Globalisation by Jonathan Michie; there are many differences between developed and advanced countries, few are as spectacular as the differences in wages. The low wages in developing countries are cited as one of the reasons for MNEs moving production from the advanced to the developing countries.
As a consequence of the world economy becoming more globalised, the active role of the ILO (International Labour Organisation) and international organisations is necessary as well as national governments. The ILO is the only public international organization, and the only one in the United Nations system, which is tripartite, where workers and employers enjoy equal rights with governments in representation and decision-making. [2]
Developed countries consider the seven core conventions which concern freedom of association and collective bargaining, freedom from forced labour, non-discrimination and the abolition of child labour. However in developing countries, only some consideration of minimum wages, employment guarantees and health and safety measures have been taken, because the economic and social structure is different from in other countries.
Some researchers argue that the most fundamental of these rights is the right to a voice - to organize and be heard, to be able to defend interests and to collective bargaining. It is the foundation on which other rights can be fully exercised.
It is also argued that there are some negative aspects of imposing International Labour Standards because they don’t cover all workers in relevant countries.
Moreover, international financial organisations such as the IMF and World Bank encourage governments to reduce labour costs with a view to increasing exports.
Despite this, some of the conclusions in an OECD study published in 2002 under the title International Trade and Core Labour Standard are that countries which strengthen their core labour standards can increase economic growth and efficiency by raising skills levels in the work force and by creating an environment which encourages innovation and higher productivity. [3]
Labour standards, particularly the core labour standards, contain principles that do lead to poverty reduction.
In the real world, even the most flexible labour markets require social agreement on their fairness of wages and income differentials. [4]
The current status of international labour standards
Number of ratifications
http://info.worldbank.org/etools/docs/library/75867/dc2003/proceedings/pdfpaper/standards.pdf
An international legal framework on social standards ensures a level playing field in the global economy. It helps governments and employers to avoid the temptation of lowering labour standards in the belief that this could give them a greater comparative advantage in international trade.
In many developing and transition economies a large part of the workforce is active in the informal economy. Moreover, such countries often lack the capacity to provide effective social justice. Yet international labour standards can be effective tools in these situations as well. Most standards apply to all workers, not just those working under formal work arrangements; some standards, such as those dealing with homeworkers, migrant and rural workers, and indigenous and tribal peoples, actually deal specifically with areas of the informal economy. [5]
[1] http://www.imf.org/external/pubs/ft/fandd/1997/12/pdf/golub.pdf
[2] nobelprize.org/nobel_prizes/peace/laureates/.../labour-article.html.
[3]http://info.worldbank.org/etools/docs/library/75867/dc2003/proceedings/pdfpaper/standards.pdf
[4] The Handbook of Globalisation by Jonathan Michie
4
It is obvious we all agree that an international legal framework on social standards is crucial to ensure a level playing field in the global economy. Moreover, it is in everyone's interest to see these rules applied across the board, so that those who do not put them into practice do not undermine the efforts of those who do. (See ILO for more on the benefits of international labour standards in a globalised context: http://www.ilo.org/global/What_we_do/InternationalLabourStandards/Introduction/benefits/lang--en/index.htm
International labour standards are sometimes perceived as entailing significant costs and thus hindering economic development. However, it is important to highlight that a growing body of research indicates that compliance with international labour standards often accompanies improvements in productivity and economic performance (World Bank 2005). Higher wage and working time standards and respect for equality can translate into better and more satisfied workers and lower turnover of staff. Investment in vocational training can result in a better-trained workforce and higher employment levels. Safety standards can reduce costly accidents and health care fees. Employment protection can encourage workers to take risks and to innovate. Social protection such as unemployment schemes and active labour market policies can facilitate labour market flexibility and inclusion of the informal sector; they make economic liberalization and privatization sustainable and more acceptable to the public. Freedom of association and collective bargaining can lead to better labour-management consultation and cooperation, thereby reducing the number of costly labour conflicts and enhancing social stability.
Interestingly, the beneficial effects of labour standards do not go unnoticed by foreign investors. Studies have shown that in their criteria for choosing countries in which to invest, foreign investors rank workforce quality and political and social stability above low labour costs. At the same time, there is little evidence that countries which do not respect labour standards are more competitive in the global economy. (Kucera, 2002)
References: World Bank (2005) World Development Report 2005: A better investment climate for everyone (Washington, DC, 2005), pp. 136-156 Kucera D (2002) "Core labour standards and foreign direct investment" International Labour Review, Vol. 141, No. 1-2 pp. 31-70.
5
There is no doubt that higher global labour standards would be desirable; however
there are serious arguments in the literature arguing that such standards would result in worsening the living and working conditions of people they are designed to help. Below, I cobbled together some pros and cons, based reading recommended for this unit:
Arguments for a coordinated approach to global labour standards:
- it prevents a “race to the bottom” (stops competitive pressures from reducing labour protections to their lowest common denominator. In the absence of international cooperation individual countries cannot raise labour standards without jeopardizing their competitive advantage.
- Labour standards protect valuable non-market aspects of society (health, family and society structures)
- Labour standards support better labour relations, cooperation on the job, and sharing information – factors which enhance productivity. In addition, better standards, including higher wages, could pay for themselves through efficiency wage effects that increase effort on the job.
- Labour standards could also produce faster growth due tot heir economic, not microeconomic, impact. Higher labour incomes could raise global demand and yield faster growth.
Arguments against global labour standards:
- global labour standards will trigger unintended consequences that will end up hurting the very people the policies aim to help. For example, eliminating child labour could encourage child prostitution. Raising wages could cost jobs. Stricter enforcement could cause firms to relocate. In short, global labour standards create market distortions that reduce economic well being due to an inefficient allocation of resources.
- Global standards compromise the competitive position of those developing countries with an abundance of low-skill, low-wage labour. This loss of competitive advantage means fewer jobs and scarcer economic opportunities for poor workers with few skills. On the flip side, such protection shield workers in more affluent economies from global competition. Because of this organizations advocating for better labour standards on a global scale have been accused of pushing an agenda of disguised protectionism.
Despite the potential a system of labour standards possesses for raising the well-being of wage earners around the world, designing and implementing an appropriate set of institutions to realize this goal remains a significant challenge.
As Heintz argues if the movement for global standards is primarily an outcome of concerns raised only by advanced industrialized economies, then the justification for these standards to be foisted upon developing nations become becomes questionable, particularly if such standards are not considered to be part of the body of commonly accepted international law. Under these conditions charges of “aggressive unilateralism” and “disguised protectionism” carry additional weight. Similar concerns surface on proposals that delegate responsibility for labour standards ro global governance institutions such as World Bank or the WTO in which the balance of power tilts in favour of the world’s rich countries.
In my opinion the most realistic way of enhancing labour rights would be to give incentives to companies to apply them or to establish a standardized code of conduct to implement labour standards rather than imposing legislation on countries
6
As we all are clear about the fact, that poor nations export labor-intensive goods whereas rich nations export capital intensive goods. So does globalization reduce inequalities or worsens the situation? This could be answered in an ambiguous manner as there can be many interpretations.
A common cliché’ often chanted by protestors is that globalization is making the rich richer and the poor poorer. This clearly implies a rise in economic inequality and poverty as a result of globalization.
Does globalization exacerbate inequalities? To an extent yes, as MNC’s are in strife with domestic businesses, globalization arouses a negative impact on the economy of an individual country. MNC’s comfortably establish themselves in developing countries which steals business from domestic competitors. Hence local corporations are running out of business and this is where inequalities instigate due to globalization.
Does globalization reduce income inequalities? Although I have stated a pessimistic aspect above, globalization has opened up opportunities for many and the advantages listed below clearly outweigh the disadvantage.
1) Exchange of technical knowledge which spreads perspectives and ideas of different aspects of businesses.
2) Direct foreign investment.
3) Industrialized and developing economies engage in trading and sharing with each other which has a huge impact on world poverty.
4) Emigration from one country to another which results in transferring of skills and knowledge.
5) Large capital inflows.
7
The cartoon suggests that businesses have benefitted the most from Free Trade at the expense of workers in both developing and developed nations and the trade bodies that promote free trade have been complicit in this. An Oxfam study from 2002 suggested that 97% of the benefits of free trade had gone to the rich and middle income countries and only 3% to developing countries. Even if we were to argue with the interpretation of the results it seems clear that the benefits of free trade have not trickled down to those at the bottom of the income level in developing countries, at least not yet. To alleviate poverty, some have argued the trade should be fairer not freer. A good summary of the arguments can be found in the online Economist debate in 2010[1]. Critics of fair trade argue that it is an incoherent policy because there can be no measurement of what ‘fair’ is. They also argue that altruism has no place in an efficient market economy and will distort it. Finally they argue that forcing up the wages in developing country is likely to lead to a fall-off in trade with developing countries and could be an excuse for clandestine protectionism in the domestic market. I think these arguments miss the point. In most cases wages of employees at the bottom of the supply chain are only a small fraction of the total cost of the product and even a large increase in wages would only increase the product modestly or absorbed further up the supply chain through smaller profits and any distortion is dwarfed by the minimum wage and welfare systems that exist in western countries. Also if eradication of child labour, or environmental damage is a distortion, then distortion is preferable to the freer trade. The cartoon may hit the mark but does not help us strike the right balance between benefits of free trade and fair trade.
