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1. Foreign Direct Investment and Labour Market Dynamics in a Developing Country: Evidence from Indonesian Plant-Level Data

Author:
Toshiyuki Matsuura and Hisamitsu Saito
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This study examines the impact of inward foreign direct investment on the wages and employment of skilled and unskilled workers in Indonesian manufacturing plants. Entry of multinational enterprises affects local labour markets through spillovers as well as labour and product market competition. Our results show that spillovers increase the labour demand of local plants for unskilled workers, but increased wages due to severe labour market competition reduce the demand for skilled workers. We also find that product market competition causes resource reallocation from low- to high-productivity plants. Thus, attracting inward foreign direct investment effectively enhances aggregate productivity growth, but may retard the transition to skill-intensive production in Indonesian manufacturing.
Topic:
Development, Foreign Direct Investment, Manufacturing, and Labor Market
Political Geography:
Indonesia and Asia

2. Analysis of Global Value Chain Participation and the Labour Market in Thailand: A Micro-level Analysis

Author:
Upalat Korwatanasakul and Youngmin Baek
Publication Date:
05-2020
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This study assesses the links between global value chain (GVC) participation and the labour market to examine the relatively unexplored employment-related distribution effects of GVC integration. Based on the Mincer wage model, we examine the relationship between GVC participation and worker productivity and wages at the individual level. Our main estimation method is a simple ordinary least squares estimation using pooled cross-sectional data from the Thai Labour Force Survey for the period 1995–2011. We also separately examine the effects of forward and backward GVC participation on wages and wage distributions. Our results show that GVC participation induces higher monthly wages for individuals and increases productivity in the labour market through either the forward linkage or backward linkage. We even find that GVC participation can help mitigate inequality. Our findings show that GVC participation promotes inclusive job creation and provides more job opportunities for rural, female, and low-skilled workers. Policies to support leveraging the existing strong industries through upgrading, smoothing labour movements while improving agricultural productivity, and preparing to move towards a services economy can help prepare Thailand, and other developing countries in general, to upgrade to higher value chains. Although GVC participation may be a catalyst for higher wages, greater labour productivity, and more inclusive job creation, its employment effects are complicated. An unbalanced policy framework might contribute to uneven income distributions and exclusive job creation as participating in GVCs through different linkages can benefit different stakeholders in varying ways. Therefore, a policy framework that balances the benefits among stakeholders in terms of wage distributions and job inclusion is ideal.
Topic:
Labor Issues, Work Culture, Global Value Chains, and Labor Market
Political Geography:
Asia and Thailand

3. The Value-Added Tax Reform and Labour Market Outcomes: Firm Level Evidence from China

Author:
Yuxiang Yang and Hongyong Zhang
Publication Date:
08-2020
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
The tax incentives designed to stimulate firm investment may have a large impact on labour market outcomes. Using a comprehensive data set containing more than 1 million Chinese manufacturing firms during the period 2000–2013 with a difference-in-difference approach, we examine the impact of the value-added tax reform in 2004–2008 on the firm-level labour market outcomes. We find that firms in eligible industries and regions (treated firms) enjoying lower costs of purchasing fixed assets under the reform tended to increase capital investment and reduce employment relative to firms that did not have tax incentives (the control firms). Compared with the control firms, the treated firms became more capital intensive and had an increase in average wage but a decline in labour income share. We also provide evidence that the substitutions of labour input by capital input is associated with increases in firm productivity and the share of skilled workers, but not imported capital goods.
Topic:
Labor Issues, Reform, Tax Systems, and Labor Market
Political Geography:
China and Asia