The Effects of Multinational Production on Wages and Working Conditions in Developing Countries

Drusilla K. Brown, Alan V. Deardorff and Robert M. Stern

in Challenges to Globalization

Published by University of Chicago Press

Published in print April 2004 | ISBN: 9780226036151
Published online February 2013 | e-ISBN: 9780226036557 | DOI:
The Effects of Multinational Production on Wages and Working Conditions in Developing Countries

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This chapter assesses the empirical evidence on the effects of multinational production on wages and working conditions in developing countries. It is motivated by the controversies that have emerged, especially in the past decade or so, concerning whether or not multinational firms in developing countries are exploiting their workers with “sweatshop” conditions—that is, paying low wages and subjecting them to coercive, abusive, unhealthy, and unsafe conditions in the workplace. The chapter is organized as follows. Section 8.2 addresses these controversies in the context of the efforts and programs of social activist groups and universities and colleges involved in the anti-sweatshop campaign in the United States, and the related issues of the social accountability of multinational firms and the role of such international institutions as the International Labor Organization and World Trade Organization in dealing with labor standards and trade. Section 8.3 presents a conceptual treatment of the effects of foreign direct investment (FDI) on wages in host countries and the effects of outsourcing and subcontracting by multinational firms. Section 8.4 reviews empirical evidence on multinational-firm wages in developing countries together with evidence on the relationship between FDI and labor rights, and Section 8.5 concludes. A commentary is also included at the end of the chapter.

Keywords: multinational companies; labor exploitation; sweatshops; social accountability; labor standards; foreign direct investment; outsourcing; subcontracting

Chapter.  23928 words. 

Subjects: International Economics

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