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Improving the conditions of workers? Minimum wage legilsation and anit-sweatshop activism

Ann Harrison () and Jason Scorse

MPRA Paper from University Library of Munich, Germany

Abstract: During the 1990s, anti-sweatshop activists increased their efforts to improve working conditions and raise wages for workers in developing countries. Indonesia, home to dozens of Nike, Reebok, and Adidas subcontractors, was a primary target for these activists. At the same time, the Indonesian government (prompted by the U.S. government) greatly increased the minimum wage throughout Indonesia. This article analyzed the impact of these two different types of interventions on labor market outcomes in Indonesian manufacturing. The results suggest that the more than doubling of the real value of the minimum wage resulted in a 35 percent increase in real wages for unskilled workers between 1990 and 1996. The anti-sweatshop campaigns also had a significant impact on wages. Our research suggests that unskilled real wages increased by an additional 20 percent for exporters and multinational plants in sweatshop industries, defined as textiles, footwear, and apparel. The combined effects of the minimum wage legislation and the antisweatshop campaigns led to more than a 50 percent increase in real wages and a doubling of nominal wages for unskilled workers at targeted exporting plants. One question that naturally arises is how this could possibly be achieved without adverse consequences for employment.'"^ In our research, we tested whether these higher wages led firms to cut employment or shut down operations. The minimum wage increases led to employment losses of as much as 10 percentage points for unskilled workers across all sectors in manufacturing. Surprisingly, however, anti-sweatshop activism did not have significant adverse effects on employment in the TFA sectors. The fact that wages soared and employment remained steady in textiles and apparel suggests that the anti-sweatshop movement had a positive impact on workers in these factories. This is a surprising and unintuitive result that suggests that anti-sweatshop activism in Indonesia was a "win-win" situation. Despite the rising labor costs during this period, increased market demand for textile, footwear, and apparel products led to net employment increases in foreign and exporting firms.

Keywords: corporate social responsibility; minimum wages; employment; Indonesia; anti-sweatshop campaigns (search for similar items in EconPapers)
JEL-codes: F23 J31 J80 (search for similar items in EconPapers)
Date: 2005
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Published in California Management REview winter.48(2006): pp. 144-160

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