Low-wage Competition Research Articles

Das Entsendegesetz: Suendenfall Oder Loesung Des Arbeitslosigkeitsproblems?

In March 1996, the Bundestag introduced a minimum wage law for the German construction business in order to protect native workers from low wage competition by posted workers from other EU countries. This Entsendegesetz (Posted Workers Act) was backed formally by the EU Posted Workers Directive of December 1996. This paper analyzes the economic and political background of the law as well as its impact on the German construction business according to economic theory and provisional empirical evidence from similar protective measures taken in the U.S. The effectiveness of the law is seriously limited by practical and conceptional problems, like resource constraints in control, shifts from legal to illegal employment, or compatibility with basic EU law and principles. Moreover, since the central problems of the German construction business are structural, one cannot expect much of a relief for the labor market of native workers. Since the Entsendegesetz seems therefore only justifiable in the short run in order to smoothen structural adjustment and to avoid political unrest and xenophobia, it should not be extended.

Low-wage competition: pains from trade for medium-wage countries

The entry of a low-wage country into a world economy with preexisting wage differentials puts the gains from trade in a former low-wage and then medium-wage country under pressure. If negotiations over the formation of a free trade area cover international transfers, there is a strong presumption that they bring about global free trade and compensation of the medium-wage country if necessary. In the absence of international transfers, by contrast, the medium-wage country is not compensated when global free trade causes a reduction in its gains from trade, and it may even happen that it is not part of the equilibrium free trade area.

Prizes in Working-Class History and the State of the Field

Prizes in Working-Class History and the State of the Field

Trade, technology, and the channels of wage inequality

Abstract We use a large sample of German workers to analyse whether low-wage competition with China and Eastern Europe (the East) affects the wage structure within German manufacturing industries. In order to identify the channels through which trade and technology affect wage inequality, we decompose wages into firm and worker components. We find that the rise of market access and the competitiveness of the East has a substantial impact on inequality via the worker-wage component. While we find no large effect of the firm effect and assortative matching on overall inequality we find that trade induced matching is relevant for high-tech industries. We also account for exposure to technological change and do not find an effect on the dispersion of wage components. Overall, trade explains around 15% of the recent increase in wage inequality.

Guest Workers on Farms Stand in the Eye of the Covid Storm

32 | International Union Rights | 27/1-27/2 FOCUS | UNIONS, WORKERS’ RIGHTS, AND THE COVID-19 PANDEMIC Guest Workers on Farms Stand in the Eye of the Covid Storm On April 21 President Trump announced in a tweet that, while stopping almost all kinds of legal immigration for at least two months, he was placing no limits on the continued recruitment of H-2A guest workers by growers. Trump claimed the spreading COVID-19 pandemic made his order necessary, but he cited no evidence to show that a ban covering all forms of family-based migration would stop the virus’ spread, while leaving employer-based migration unchanged would not exacerbate the pandemic. Trump has repeatedly declared his support for the guest worker program. In a 2018 Michigan speech he told a grower audience, “we’re going to let your guest workers come in, because we have to have strong borders, but we have to let your workers in ... They’re going to work on your farms ... but then they have to go out. But we’re gonna let them in because you need them ... We have to have them”. Agriculture Secretary Sonny Perdue explained the apparent contradiction. He wants Trump “to separate immigration, which is people wanting to become citizens, [from] a temporary, legal guestworker program. That’s what agriculture needs, and that’s what we want. It doesn’t offend people who are anti-immigrant because they don’t want more immigrant citizens here. We need people who can help US agriculture meet the production”. This promise is more than election-year politics. It is a big step towards creating a captive workforce in agriculture, based on a program notorious for abuse of the workers in it, and for placing them into low-wage competition with farmworkers already living in the US. It is also a step into the past. Family preference migration, in which immigrants can get residence visas (green cards) based on their family relationships, was won by the civil rights movement. Bert Corona, Cesar Chavez and others convinced Congress to end the bracero program in 1964. They fought for an immigration policy based on family unification, instead of one based on growers’ desire for a low-wage labour supply. Especially for immigrants coming from Asia, Africa and Latin America, this new system made it possible to unite families in the US, settle down and become part of communities. Before that watershed step, people could come from Mexico to work as braceros, but not to stay, and not with families. Immigration quotas favouring white migration from Europe made it very hard for families in general to come from non-European countries. When President Trump said, in a 2018 meeting with Senator Dick Durbin (D-Ill.), “why do we want these people from all these shithole countries here? We should have more people from places like Norway”, he was voicing his nostalgia for that precivil rights past. Trump has now suspended the family preference system. Whether it will be reinstated at some point is anyone’s guess. And the H-2A program, which is growing rapidly, is a direct descendant of the old bracero regime. It will continue, given its support in a Congress that is much more conservative than the one in 1964, which abolished the bracero program and established the family migration system. Even Democrats in the current Congress have introduced legislation that would greatly expand H-2A. Although growers have claimed the coronavirus has created a labour shortage making the H-2A program vital, the program was mushrooming long before the pandemic hit. Last year the US Department of Labor gave agribusiness permission to fill 257,667 jobs with workers brought almost entirely from Mexico, with H-2A visas. That amounted to 10 percent of all the jobs in US agriculture. The program is five times bigger than the 48,336 jobs certified under George W Bush in 2005. In some states H-2A certifications now make up more than 10 percent of farmworker jobs. In Georgia growers fill a quarter of all farm labour jobs with H-2A workers. An agricultural system in which half the workforce would eventually consist of H2-A workers...

Fast Fashion: Theory and Evidence from Portuguese Textile and Clothing Firms

We study how firms respond to import competition by increasing the speed of trade. We use data on all Portuguese textile and clothing exporters’ monthly transactions and exploit the exogenous increase in competition following the removal of Multi-Fibre Arrangement (MFA) quotas on Chinese exports. The removal of quotas is associated with an increase in the price and frequency of export transactions and with a reduction in average distance of firms’ exports. We rationalize our findings with a heterogeneous-firm model of exporting where firms decide which markets to serve as well as the frequency of transactions and the quality of exported products in each market. In response to low-wage competition, the more productive firms increase exports of high-quality products to nearby markets, while the less productive firms drop out from distant and low-income markets. These changes in export patterns imply that advanced economies become more specialized in “fast-fashion” —exporting higher quality products to closer markets at higher frequency.

CHURCHILL'S DEFEAT IN DUNDEE, 1922, AND THE DECLINE OF LIBERAL POLITICAL ECONOMY

AbstractThis article uses Churchill's defeat in Dundee in 1922 to examine the challenges to liberal political economy in Britain posed by the First World War. In particular, the focus is on the impact of the war on reshaping the global division of labour and the difficulties in responding to the domestic consequences of this reshaping. Dundee provides an ideal basis for examining the links between local politics and global economic changes in this period because of the traumatic effects of the war on the city. Dundee depended to an extraordinary extent on one, extremely ‘globalized’, industry – jute – for its employment. All raw jute brought to Dundee came from Bengal, and the markets for its product were scattered all over the world. Moreover, the main competitive threat to the industry came from a much poorer economy (India), so that jute manufacturing was the first major British industry to be significantly affected by low-wage competition. Before 1914, the Liberals combined advocacy of free trade with a significant set of interventions in the labour market and in social welfare, including trade boards. The Dundee case allows us to examine in detail the responses to post-war challenges to these Liberal orthodoxies.

Dualization as Destiny? The Political Economy of the German Minimum Wage Reform

Germany is widely seen as a “dualized” economy driven by a powerful and stable “insider” coalition in the manufacturing sectors. In this article, that picture is challenged. An examination of the political economy of the outsider-friendly 2014 Minimum Wage Act, using public opinion data, document analysis, and qualitative interviews, shows how earlier dualizing reforms led to unintended negative feedback effects: First, public opinion reacted negatively to increasing inequality in the years preceding the introduction of the minimum wage. Second, a remarkable shift is found among trade unions toward support of a minimum wage, even in manufacturing. Although the threat of low-wage competition and flexibilization did play a role, trade union solidarity was at least as important. Those endogenous dynamics came together in a self-undermining process unfolding over a relatively short period of time. Potential alternative explanations are explored, including classical partisan politics, party competition, and employer preferences.

Learning to Love the Government

One counterintuitive variation in wage-setting regulation is that countries with the highest labor standards and strongest labor movements are among the least likely to set a statutory minimum wage. This, the author argues, is due largely to trade union opposition. Trade unions oppose the minimum wage when they face minimal low-wage competition, which is affected by the political institutions regulating industrial action, collective agreements, and employment, as well as by the skill and wage levels of their members. When political institutions effectively regulate low-wage competition, unions oppose the minimum wage. When political institutions are less favorable toward unions, there may be a cleavage between high- and low-wage unions in their minimum wage preferences. The argument is illustrated with case studies of the UK, Germany, and Sweden. The author demonstrates how the regulation of low-wage competition affects unions’ minimum wage preferences by exploiting the following labor market institutional shocks: the Conservatives’ labor law reforms in the UK, the Hartz labor market reforms in Germany, and the European Court of Justice'sLavalruling in Sweden. The importance of union preferences for minimum wage adoption is also shown by how trade union confederation preferences influenced the position of the Labour Party in the UK and the Social Democratic Party in Germany.

When the Floodgates Open: “Northern” Firms' Response to Removal of Trade Quotas on Chinese Goods

Using the dismantling of the Multi-fibre Arrangement quotas on Chinese textile products in conjunction with China's accession to the World Trade Organization (WTO), within firms adjustments to intensified low-wage competition is analyzed. Employing Danish employer-employee matched data covering from 1995 to 2007, the analysis shows a significant change in the workforce composition of firms in response to heightened competition. Competition is found to negatively affect employment, value-added, and intangible assets of the Danish firms, and firms refocus away from products, where China's competitive advantage becomes higher. The results show an important role of the distributional impact of low-wage competition within firms in restructuring the industry. (JEL F13, F14, F16, L25, L67, P33)

Minimum Wages as a Barrier to Entry: Evidence from Germany

AbstractThis study analyses employers' support for the introduction of industry‐specific minimum wages as a cost‐raising strategy in order to deter market entry. Using a unique data set consisting of 800 firms in the German service sector, we show that high‐productivity employers support minimum wages. We further find some evidence that minimum wage support is higher in industries and regions with low barriers to entry. This is particularly the case in East Germany, where the perceived threat of low‐wage competition from Central and Eastern European countries is relatively high. In addition, firms paying collectively agreed wages are more strongly in favour of minimum wages.

Nordic labour market institutions and new migrant workers: Polish migrants in Oslo, Copenhagen and Reykjavik

Large-scale migration of workers from new EU member states to the Nordic countries, mostly to fill relatively low-skilled jobs in construction, manufacturing and services, has raised concerns of low-wage competition and the ability of the Nordic social model to uphold labour standards. This article explores variations in wages and working conditions among Polish migrant workers in Oslo, Copenhagen and Reykjavik. The analysis highlights how different institutional configurations within the Nordic labour markets shape the outcomes for migrant workers, and raises questions regarding the ability of the different variations of the Nordic labour market regime to protect workers in an open, unequal and mobile European labour market.

Workers Beneath the Floodgates: The Impact of Removing Trade Quotas for China on Danish Workers

Using the dismantling of trade quotas on Chinese textile and clothing products in conjunction with China's accession to the WTO and an employer-employee matched data-set for the period 1999 to 2010, workers' adjustments to intensified low-wage competition is analyzed. Utilizing within-industry heterogeneity in workers' exposure to this trade shock, results reveal negative and significant impact of the low-wage import shock on workers' future earnings and employment trajectories. The abolishment of quotas leads to higher likelihood of unemployment and shorter future tenure for workers. While most workers employed by firms exposed to low-wage competition are influenced negatively to a similar extent at the exposed employer, the degree of adjustment to the initial shock varies greatly across different types of workers. In particular less-educated, older and those who had elementary occupations or occupations that require industry-specific training at the exposed firms had the worst adjustment experience. The results suggest that adjustment costs are very important and heterogeneous across different types of workers and highlight the need for targeting specific groups in assistance and adjustment schemes.

Why do people dislike low-wage trade competition with posted workers in the service sector?

The issue of low-wage competition in services trade involving posted workers is controversial in the EU. Using Swedish survey data, people's attitudes are found to be more negative to such trade than to goods trade. The differences depend on both a preference for favouring social groups to which individuals belong (the domestic population) and altruistic justice concerns for foreign workers. In small-group experiments, we find a tendency for people to adjust their evaluations of various aspects of trade to their general attitude. This tendency is stronger for those opposed to than those in favour of low-wage trade competition. This may indicate that the former group forms its attitudes in a less rational way than the latter group.

International competition and industrial evolution: Evidence from the impact of Chinese competition on Mexican maquiladoras

Effects of the competition between two South locations (Mexico and China) in a Northern market (US) are analyzed. By employing a plant-level data set that covers the universe of Mexican export processing plants (maquiladoras) from 1990 to 2006 and relying on an instrumental variable strategy that exploits exogenous intensification of Chinese imports in the world in conjunction with the WTO accession of China, the empirical analysis reveals a substantial effect of intensified Chinese competition on maquiladoras. In particular, competition from China has a negative and significant impact on employment and plant growth, both through the intensive and the extensive margin. As the negative impact is stronger on the most unskilled labor intensive sectors, it triggers significant sectoral reallocation. Suggestive evidence on industrial upgrading among maquiladoras in response to competition with China is also provided. Overall the results provide additional insight into the way low-wage competition shapes the evolution of industries.

When the Floodgates Open: 'Northern' Firms' Response to Removal of Trade Quotas on Chinese Goods

Using the dismantling of the Multi-fibre Arrangement quotas on Chinese textile and clothing products in conjunction with China's accession to WTO, within firms adjustments to intensified low-wage competition is analyzed. Employing Danish employer-employee matched data supplemented with transaction-level data from between 1995 and 2007, the analysis shows a significant increase in skill and capital intensity associated with downsizing in response to heightened competition. Competition is found to negatively affect employment, value-added and intangible assets of the Danish firms, and firms are found to refocus their innovative efforts away from goods where China's competitive advantage becomes higher. The results show an important role of the distributional impact of low-wage competition within firms in restructuring the industry and support theories that indicate compositional changes in the scopes and operations of Northern firms in response to competition from South.

Post-accession migration in construction and trade union responses in Denmark, Norway and the UK

The article compares trade union responses in Denmark, Norway and the UK to the arrival of construction workers from the new EU member states. Organizing has been seen as a crucial means to avoid low-wage competition and social dumping. We analyse how the unions developed strategies for recruiting migrants, the novelty of their approaches and the results in terms of membership.

Minimum Wages as a Barrier to Entry – Evidence from Germany

This study analyses employers' support for the introduction of industry-specific minimum wages as a cost-raising strategy in order to deter market entry. Using a unique data set consisting of 800 firms in the German service sector, we find some evidence that high-productivity employers support minimum wages. We further show that minimum wage support is higher in industries and regions with low barriers to entry. This is particularly the case in East Germany, where the perceived threat of low-wage competition from Central and Eastern European Countries is relatively high. In addition, firms paying collectively agreed wages are more strongly in favour of minimum wages if union coverage is low and the mark-up of union wage rates is high.

Industry Dynamics and Competition from Low-Wage Countries: Evidence on Italy

This paper analyses the effect of competition from low-wage countries on domestic activity, using data on 230 Italian manufacturing sectors between 1995 and 2007. We find that low-wage import penetration is negatively related to employment and other measures of activity. The effect is significantly lower in more skill, capital and R&D-intensive sectors and in more vertically differentiated sectors. There is also evidence of significant effects of low-wage competition through inter-industry linkages: employment is negatively related to low-wage import penetration in downstream sectors but positively related to low-wage import penetration in upstream sectors.

Minimum Wages as a Barrier to Entry: Evidence from Germany

This study analyses employers' support for the introduction of industry-specific minimum wages as a cost-raising strategy in order to deter market entry. Using a unique data set consisting of 800 firms in the German service sector, we find some evidence that high-productivity employers support minimum wages. We further show that minimum wage support is higher in industries and regions with low barriers to entry. This is particularly the case in East Germany, where the perceived threat of low-wage competition from Central and Eastern European Countries is relatively high. In addition, firms paying collectively agreed wages are more strongly in favour of minimum wages if union coverage is low and the mark-up of union wage rates is high.