Globalisation and employment conditions study

Does foreign direct investment erode labour rights?

This paper focuses on the impact of foreign direct investment (FDI) and trade on wages, working conditions, and core labour protections. The paper draws on existing empirical evidence on the relationship between investment and labour practices as well as mechanisms to improve labour conditions such as fair trade, government regulation and voluntary agreements.

The paper considers the following:

the available empirical evidence on the impact of foreign direct investment (FDI) and trade on the labour market
private voluntary initiatives that allow consumers and investors to express their values relating to working conditions
trade agreements that have been used to affect the conditions of work in the export sector

The review of the literature points to the following trends:

multinationals do not pay higher wages and erode job security
U.S. firms seek locations in which production wages and where there is an abundance of skilled labour
high wages that are not justified by higher productivity deter FDI
inward FDI is positively correlated with the rights to association and collective bargaining
greater political and social stability and labour force quality promote economic growth which in turn attracts FDI
greater civil liberties are positively correlated with higher wages, which tends to deter FDI; however, after controlling for wages, greater civil liberties attract FDI
child labour is found to negatively affect labour quality and thus deters FDI
gender inequality is found to negatively impact FDI
government regulations do not appear to increase wages per worker but do reduce capital formation and value-added production
corporate codes of conduct have led to efficiency improvements in factory management that raise total factor productivity, thereby reducing excessive overtime and potentially raising wages

The report concludes that because trade is widening the distribution of income, the time has undoubtedly arrived to identify efficient strategies for broadly distributing the gains from trade.

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Globalisation and employment conditions study