Employment Conditions in Global Value Chains

Dev Nathan

ABSTRACT

The paper relates employment conditions in the production segments of GVCs to the level of knowledge in them, as derived from the division of labour and power (or vertical relations) within GVCs. Employment conditions are the outcome of the interplay of these vertical relations with the national horizontal relations, those of national institutions and labour market conditions. Having set out the structure of relations between the knowledge levels of out-sourced production and employment conditions, the chapter considers ways in which employment conditions can be modified by factors such as supplier firm strategy and the associational or collective power of workers. The chapter concludes by considering how a competitive race to the bottom can be offset by countervailing forces that would raise the floor of the global employment structure.

Introduction

A key factor in the formation of GVCs is the existence of differences in the labour costs of comparable economic capabilities across different countries. The development of specialized providers of different tasks and a reduction in the cost of inter-firm coordination result in the out-sourcing of tasks other than those that are within the core competence (Prahalad and Hamel, 1990) of a firm. However, for out-sourcing to turn into a global value chain (GVC), there has to be a difference in the labour (and other production) costs of production segments in different geographical locations. For example, in 2016, the average hourly wage in the USA was US$23.32 while that in India was US$0.70 (ILO, 2016). Taking a 30:1 ratio for U.S.-to-Indian wages and assuming that with the same equipment (e.g. for cutting and making garments) U.S. labour would be twice as efficient as Indian labour, that would still make the labour cost of producing garments in the USA 15 times higher than what it would be if they were produced in India.

There are non-labour costs that are also involved in cost arbitrage. The key component, though, is that of labour costs. Land and buildings can be put up in many places, but labour (and management) capabilities need to exist or be easily transformed if certain manufacturing and production tasks are to be located in any particular geographical location.

This chapter deals with the nature of employment in GVC production in developing countries. It begins by discussing the nature of vertical and horizontal relations in GVCs, the former being the relations between lead and supplier firms in GVCs and the latter the national institutional and labour contexts within which supplier firms operate. Knowledge and market power are discussed as key elements of vertical relations in GVCs. The analysis then relates these knowledge features of GVC suppliers to the quality of employment. After pointing out the links between knowledge and employment characteristics, the chapter looks at some empirical evidence about these relations. The empirical evidence is in terms of case studies and also a large-scale sample survey of employment in India. The data from the survey is utilized as an illustration of the broad relations between the knowledge levels of GVC production segments and the job quality within them.

Having set out the structure of the relations between the knowledge levels of GVC employment and employment quality, the chapter then looks at ways in which this could be modified by factors such as the strategy of supplier firms or workers’ associational power. Finally, the chapter looks at ways in which a competitive “race to the bottom” of supplier firms and countries can offset by countervailing forces that could raise the floor of the global wage structure.

Employment Outcomes in GVCs

The distribution of labour within a value chain and the business practices of lead firms affect labour relations or employment systems within supplier countries (Locke, 2013; Anner, Bair and Blaisi, 2014). Together they constitute what are called vertical or inter-firm relations within a GVC (Neilson and Prichard, 2009). The labour relations that come to exist in supplier segments are also affected by the relations between capital, labour and the state in the countries of supplier firms, which are called horizontal relations (Neilson and Pritchard, 2009). In other words, employment relations are embedded in the institutional framework of supplier economies.

There can be disjunctures between the possibilities available in vertical relations and the actual benefits accruing to workers. This has been characterized as the likely disparity between the economic upgrading of firms and social upgrading of workers (Barrientos, Gereffi and Rossi, 2011). Supplier firms may secure a greater portion of the value in a chain through various forms of upgrading, leading to increases in productivity, but little or even none of that may be passed on to workers. It is also possible that the supplier firms themselves do not get the benefits of productivity increases—the monopsonistic structure of the market for their products may result in the benefits of productivity increases being captured by the few buyers (Kaplinsky, 2005). In this case, there would be no redistribution of value to suppliers.

Vertical Relations: Knowledge and Power in GVCs

How, do vertical relations or relations between lead and supplier firms in GVCs affect employment conditions in supplier firms? This necessitates bringing in the business practices of lead firms in GVCs and their impacts on employment conditions (wages, security of employment, etc.) in supplier firms.

Supplier Prices and Wages

In general, GVC analysis starts with the empirical observation that rents or high profits are concentrated with lead firms, while the suppliers or manufacturers get merely competitive profits (Kaplinsky, 2005; Nathan and Sarkar, 2011; Milberg and Winkler, 2013; Baldwin, 2016). This distribution of value within a GVC impacts wages, as predicted by Kalecki’s theory of distribution, where wages are based on the degree of monopoly within which a firm operates (1970).

A number of studies support the Kalecki proposition that workers’ wages are positively connected to the rents earned by the firms. Empirical studies in countries like the USA ((Mishel, 1986: 91), Belgium (Dobbelaere, 2005) and India (Pal and Rathore, 2014) support Kalecki’s assertion that there is a link between high mark-ups and the demand for higher wages by unions.

The connection between a firm’s ability to mark up its prices and demands for higher wages is fairly straightforward. Firms that can mark up prices can cover an increase in costs due to higher wages. With their mark-up power, they operate in a cost-plus product market. In such a situation, unions’ demands for higher wages are likely to be conceded. In situations where firms have to regard prices as unchangeable, as in a competitive market situation, they cannot cover increases in costs through a mark-up. Where industry-level bargaining does not take place, firms in a competitive market would resist an increase in wages.

Given competition among suppliers, lead firms cost labour at the prevailing national minimum wages. These are usually much below living wages (Bhattacharjee and Roy, 2016). The Asia Floor Wage Alliance (AFWA) calculated that in 2013, national minimum wages were 46 per cent of the living wage in China, 26 per cent in India, 19 per cent in Sri Lanka and Bangladesh, 25 per cent in Cambodia, 31 per cent in Indonesia and 54 per cent in Malaysia (AFWA, 2013). Therefore, costing on the basis of minimum wages clearly prevents suppliers from offering anything approximating living wages.

Knowledge in GVC Segments

The description of vertical relations given earlier in this chapter relates to the distribution of market power within GVCs: oligopolistic in the case of lead firms and competitive in the case of suppliers. Going behind market structures reveals the division of labour as one that determines the distribution of value within a GVC. Pre-production tasks (R&D, design) and post-production tasks (branding, marketing) are carried out by lead firms, while production is carried out by supplier firms. Pre- and post-production tasks capture a major share of the value as compared to manufacturing tasks (see the depiction by Stan Shih of the famous GVC smiley curve, 2010).

Carrying out tasks, however, is based on the possession of the required knowledge and capabilities. Thus, the distribution of tasks can also be termed the distribution of knowledge within a GVC. Knowledge that is difficult to acquire with higher proportions of tacit or high-knowledge tasks that lead to technology and product development, is retained by lead firms and the headquarter economies in which they are embedded. The easier to acquire knowledge of manufacturing, with higher proportions of explicit or low-knowledge tasks, is widely spread among suppliers and the supplier economies within which they exist.

The knowledge that is difficult to acquire, which is usually the case with pre- and post-production tasks, is the basis of the rents captured by lead firms, while the easy-to-acquire production tasks are the basis of competitive profits that accrue to suppliers. Since, these rents and competitive profits are related to wages and other employment conditions, as argued above, we can extend the analysis to say that the knowledge levels of different tasks within a GVC are related to wages and employment conditions in those GVC segments.

In Lakhani, Kuruvilla and Avgar (2013) and Nathan (2016) the knowledge in a production segment is characterized by the manner in which it is coordinated or governed (Gereffi, Humphrey and Sturgeon, 2005) and this, in turn, related to the nature of employment in different GVC segments.

In captive governance, such as in apparel or shoe manufacture, the knowledge in the production segment is not very complex and easily acquired. There is a market structure of many suppliers (because of ease of entry) and few buyers. In modular governance, such as in electronics or automobile manufacture, the knowledge requirement is more complex, but the tasks are largely of a codifiable variety and the number of suppliers are fewer than in the case of captive governance structures. Finally in relational governance there is a more complex knowledge requirement, with outputs being produced through substantial interaction between buyers and suppliers. The suppliers are quite few in number and well-established suppliers could have some market power.

Supplier firms and their workers, however, are situated not only in vertical GVC relations with lead firms, but also exist or are embedded in social and economic relations within their own supplier countries. These are power and market relations between employers, employees and states in supplier countries. We now turn to the role of these national institutional factors or horizontal relations in influencing employment outcomes in GVC supplier firms and countries.

Horizontal Relations

Horizontal relations in GVCs are constituted by the institutional factors in supplier countries and also their labour market conditions.

National Institutional Factors

National institutional factors in supplying countries are not the creation of GVC lead firms. Child labour, for instance, existed before the initiation of GVC-based production and continues even in the production of non-tradables, such as road-side eateries or auto repair workshops in India and other countries. Similarly, systems of forced or bonded labour are both older than GVC-related production and exist quite independently of GVCs.

However, what is true is that GVC production did utilize both child labour and other forms of bonded/forced labour. As Allain, Crane, LeBaron and Behbahani (2013) argue, child labour and forced labour have to be understood as part of the business practices or business strategies of lead firms. Some notorious examples of conflict-related forced labour are those used in the mining diamonds and of coltan, a rare metallic ore used in  the production of electronics and mined from civil war-torn areas of the Congo (Nathan and Sarkar, 2010). In the case of diamonds the well-known Kimberley certification was used to restrict or eliminate the use of these so-called “blood diamonds”. Some steps have been taken in the case of coltan, but they have had limited success. Cleaning up the electronics supply chain still has some way to go.

A factor that impacts wages and employment conditions in developing countries is that of local laws and the local labour market. Where laws allow the employment of non-standard employees without social security (for example, the contract labour system), then there could be the use of such labour even without or beyond any requirement for flexible employment numbers.

Labour Market Conditions

The state of the labour market is obviously of importance in matters like wage-setting. With developing countries going through the transformation of shifting surplus labour from agriculture into manufacture and services, there is an “unlimited” supply of workers available at or just above the existing rural wage (Lewis, 1954). As long as this surplus labour exists, wages in GVC-related manufacturing would not face the labour markets’ pressure for upward revision. With the passing of this transition, as is arguably occurring in China (Fang and Wang, 2010), there would, however, be a general upward pressure on wages. At the same time, there might also be specific labour shortages for particular types of workers. For instance, India has faced a shortage of both English-speakers and trained software engineers, leading to both higher wages and high rates of attrition in call centres and IT software service sectors.

An analysis of GVC-related employment has shown that the rise of wages in the Chinese coastal region has led to a shifting of labour-intensive production segments to Western China and other regions with low wages (Zhu, 2018). This has also prompted the Chinese government to act in a manner similar to what South Korea, Taiwan and Hong Kong did in the past: to “Go West, Go Out, Go Up”, that is, to shift to low-wage regions in the West or in other countries, and also go up the value chain. As one would expect, labour conditions are not only affected by GVC investment, they in turn affect GVC investment, leading to shifts to newer low-wage locations and to attempts to move up the value chain in order to find new sources of profits.

Explanations of Labour Outcomes

We now return to the GVC distribution of tasks. Pre-production (design), production (manufacture) and post-production (branding and marketing), is a coarse-grained division of tasks within a value chain. How do the GVC’s distribution of tasks relate to employment conditions? The level of analysis has to shift from that of the firm to that of workers or employees. In such an analysis we need to move from the coarse-grained division of labour between GVC segments to the fine-grained division of labour in tasks performed by workers and the capabilities required for their performance.

Knowledge and Employment Quality

Tasks require workers with certain capability levels; these capability levels are based on the workers’ knowledge levels. Employment has many features—wages, security, and so on. One can make an index of employment quality. At present, however, since the object of this exercise is to derive a few readily analysable categories, we stick to a uni-dimensional measure of job quality, i.e., employment security.[1] What are being presented below are stylized facts (or broad generalizations) on knowledge levels and employment quality.

For both the security or quality of employment and the knowledge base of workers, we consider three levels—high, moderate and low. This gives us nine possibilities of the combinations of the two variables, knowledge and quality of employment, with three levels for each of the variables.

It would be possible to make a 2×2 rather than a 3×3 matrix. The former, however, would have the disadvantage of binary classification, i.e., there would be an “all or nothing” situation, being either entirely positive or entirely negative. A 3×3 matrix, on the other hand, has the advantage of allowing for intermediate possibilities.

Figure 1: Knowledge Levels and Job Quality

This section is based on Nathan (2016) and Nathan and Kumar (2016).

Knowledge Level (K) of Tasks Job Quality (Q)
Low (1) Moderate (2) High (3)
Low (1)

 

Low knowledge; Low job quality

 

[A]

Low knowledge; Moderate job quality

 

[B]

Low knowledge; High job quality

 

[C]

Moderate (2)

 

Moderate knowledge; Low job quality

 

[D]

Moderate knowledge: Moderate job quality

 

[E]

Moderate knowledge; High job quality

 

[F]

High (3)

 

High knowledge; Low job quality

 

[G]

High knowledge; Moderate job quality

 

[H]

High knowledge; High job quality

 

[I]

The 3×3 matrix in Figure 1 is a framework through which the links between knowledge and job quality can be classified. However, we could develop a theory or hypothesis to be applied to this framework. The simplest one is that the level of job quality is determined by or related to the knowledge level of a task performed in a GVC segment. This would give us the highlighted cells along the diagonal. GVC suppliers performing low-knowledge tasks lead to a low-quality employment structure; medium-knowledge tasks lead to a moderate-quality employment structure; while high-knowledge or knowledge-intensive tasks lead to a high-quality employment structure. The segmentation of the labour market by job quality is, in this analysis, related to the knowledge level required in order to perform the tasks assigned to the GVC supplier.

It should be noted that the term “employment structure” does not imply that all jobs in a GVC supplier would be of the same low, medium or high quality. Instead, there would be proportionately more jobs of each category in the relevant employment structure. This point will be returned to later, in the empirical analysis. In fact, a GVC supplier would not only offer jobs belonging to just one knowledge-level and/or quality. In garment production, for instance, there are standard assembly-line tailors, moderate-knowledge level sample tailors and high-knowledge level design tailors. Such a distribution of workers at different knowledge levels can be represented by the diagonal in Figure 1, thus illustrating the link between knowledge and employment quality within a single firm rather than between GVC supplier firms.

This theory is a technologically deterministic one based on technology distribution along GVCs. It can also be a theory of market-based outcomes, where the ratio of returns to the cost of workers acquiring knowledge and capabilities determines wages. Knowledge can be substituted by technology, and job quality is then uniquely determined by technology—low-tech with low-quality jobs, medium-tech with moderate-quality jobs, and high-tech with high quality jobs. On the basis of such a theory, the only way to improve job quality would be through supplier firms increasing the knowledge base of the workers employed.

However, the relationships between knowledge types and labour practices can be modified by firm strategy, such as that of building capabilities in order to move into higher income-earning activities (Nathan, Saripalle and Gurunathan, 2016). They are also moderated by the context within which firms function, such as national labour market regulatory institutions (including not only the state but also trade unions) and the state of the labour market. The state of the labour market includes not only matters like the overall or specific scarcity of workers, but also additional social conditions such as the gender relations within which workers exist (as discussed more extensively in Chapter – by Stephanie Barrientos).

How do these additional factors, i.e. those other than that of the knowledge level of the task distribution in GVCs, influence job outcomes in terms of job quality? When profits remain low and orders unstable, then the poor quality of jobs in low-knowledge tasks is reinforced. However, the redistribution of rents to supplier factories in a GVC or the stability of orders could together enable higher wages and more secure jobs.

National institutional factors, particularly labour laws, also influence the nature of jobs. To take an example from China, the Contract Labour Law (Lan and Pickles, 2011) increased security of employment for workers in general. China also has a regulation that restricts flexible labour to less than 10 per cent of the total workforce of an enterprise. There may well be breaches of these laws, but their existence changes the context in which employment relations are decided.

Similarly, the state of the labour market influences both the security of jobs and wages. At the national level (in developing countries) the overall scarcity of labour can push up wages, as has happened in China, but even local scarcity, increased by language problems, can also lead employers to offer more secure jobs.

Women’s gender-based domestic responsibilities, on the other hand, negatively affect their participation in the labour market. The need to combine domestic responsibilities—especially child care—with paid work can lead women to choose insecure, low-paid, but flexible work from home rather than more secure and better-paid work in factories (Pani and Singh, 2010). This would reduce the quality of women workers’ jobs.

Thus, institutional and labour market factors can influence the types of jobs that prevail. These influences can be both positive and negative. In terms of Figure 1, positive effects would move job quality in a rightward or upward direction, while negative influences would move them in a leftward or downward direction.

The cells along the diagonal represent market-determined results. Policy and institutional interventions, the latter through trade unions, could be brought into the picture to move employment outcomes in the directions desired.

The analytical scheme above, relating knowledge level of the GVC segment with employment quality, should help in bringing both order and an awareness of causative factors into the discussions of empirical case studies. Quality of employment in GVC segments can be categorized as low, medium or high and compared to the knowledge level of production in that GVC segment.

In seeing whether this analytical scheme relates to empirical observations, we look at the connection between the analytical scheme and empirical investigations in two ways. One way is to summarize numerous case studies in terms of the employment characteristics of these three types of GVC relations: those in captive and low-knowledge segments, in modular and intermediate-knowledge segments, and in relational and high-knowledge segments.

Empirical Investigations: Case Studies

Summarizing from multi-sector, multi-country case studies (see Nathan, Tewari and Sarkar, 2016), GVCs of low-knowledge segments such as garment and shoe manufacture, agro-food production and tourism services all provide employment with low levels of security and high levels of supply through brokers, along with the hyper-mobility of workers. Wages are low, at or around the national minimum wage, and supervision is of the Taylorist operator mode or through piece-rates. There is often a high level of abuse, verbal and physical (the latter including sexual abuse), in these low-knowledge GVC segments. Of course, it is not as though sexual abuse is confined to these low-knowledge segments; as recent exposures have shown, it exists even at the highest levels of professional employment. But verbal and physical abuse is an every-day feature of employment in low-knowledge GVC segments.

Work in the low-knowledge segments is often out-sourced from the supplier factories to both “shadow factories”, with even worse conditions of employment, and to home-workers. There are a high proportion of women in these segments, dominating particularly the home-work segment. Agricultural production in GVCs, such as those of cocoa (Barrientos, 2014), fresh vegetables and fruits (Evers, Amoding and Krishnan, 2014) is often carried out on small farms, subsuming within them the labour of women and men as self-employed workers for GVCs.

Modular-governance GVCs, such as electronics assembly or automobile manufacture, require knowledge that is of moderate complexity, but high codifiability. These GVC segments also require workers with a reasonable level of education, instead of the merely literate workers in garment manufacture or much of agro-processing. Orders, however, are volatile, particularly in electronics, and this leads to a high level of temporary and agency workers (e.g. for Thailand, Holdcroft, 2015), low stability of employment in some countries and high levels of overtime in others (e.g. for China, Chan, Pun and Selden, 2016; and for Malaysia, Samel, 2012). Supervision is of the Taylorist variety, with the pace of work set by the speed of assembly lines.

Much work in back-office services, such as call centres handling customer care, requires a knowledge of English or some other European language. While the educational requirements go up in comparison to electronics or automobile assembly, that, however, does not make for more complex knowledge requirements. New forms of electronic monitoring of work, such as measuring the time spent on performing a task, have led to methods of surveillance that are called digital Taylorist forms of office work (Noronha and D’Cruz, 2016).

In relational-governance GVCs, such as in IT software services, the knowledge requirements are more complex, involving some of the design besides the development and maintenance of IT systems. However, even in this, there is a division of labour, with design often being undertaken in headquarter economies and the development and maintenance of the systems being undertaken in developing countries. Indian IT firms, for instance, are concentrated in the middle- to lower-complexity sections; though they are moving into design and full-package supply (Sarkar, Mehta and Nathan, 2013 and Ahmed, 2018).

In the IT software GVC segments, workers are required to have a high level of knowledge and employment is secure, but the drive to reduce costs makes employees vulnerable to “bell curve” methods of dismissal, where a certain percentage of assessed employees who are at the bottom of the curve are dismissed each year. The earnings, however, are higher than for employees of comparable qualifications in other sectors (Sarkar and Mehta, 2016).

At a broad level, the case study data falls into three knowledge and employment categories—low knowledge with poor employment quality; medium knowledge with intermediate employment quality; and high knowledge with high employment quality. This pattern can be checked against national data on employment—for instance, that available in the Indian National Sample Survey (NSS). The reason for using the Indian data is not that it can be argued to be representative, but that the author has access to its unit-level data which enables a detailed analysis by employment type. This data is from India, but it should be possible to use similar employment-quality data from other countries to check the patterns seen here and in various case studies.

Empirical Investigation: Sample Survey

Putting knowledge levels and employment quality together gives us Figure 2. The first term in each pair refers to the knowledge level, as proxied by education, or those with qualifications higher than a high-school education; the second term is the quality of employment, proxied by formality in employment, which refers to those with regular employment and some social security benefits. Formality in employment would correspond to what the ILO calls “standard employment”.

Figure 2: Knowledge Levels and Employment Quality

  Employment Quality
Knowledge Level Low Medium High
Low 5.3% /3.7%

(Garments)

Medium 32.7%/45.4% (Automotive)

39.8%/44.9% (Electronics)

High 82.6%/63.8%

(IT services)

 

Source: Author’s self-drawn illustration from NSSO (2012), as tabulated in Nathan and Kumar (2016).

Notes: The first term in each pair refers to the percentage of employees with qualifications higher than high-school education, while the second refers to the percentage of employees with formal employment.

The knowledge level is proxied by the educational level, using the category of those with qualifications higher than a high-school education.

The employment quality is proxied by “formal workers”, which refers to those who have regular employment, are paid on a monthly basis and receive some social security benefits.

In the low-knowledge garments production segment, the proportion of employees with good quality or formal employment is very low, in single digits at 3.7 per cent, while that of employees with more than a high-school education is also similarly low, in single digits at 5.3 per cent. In the medium-knowledge automobiles and electronics production sector, the proportion of employees with good-quality employment takes on a middle value—around 45 per cent of employees; while that of employees with more than a high school education is also at a moderate level—between 32.7 and 39.8 per cent.

In the high-knowledge segment of IT services, the proportion of those with more than a high-school education is high at 82.6 per cent, while those with good-quality employment is also high at 63.8 per cent. In addition, it should be noted that self-employment in IT services is often that of high-earning consultants, unlike in the case of garment work, where the self-employed are either women home-workers or individual tailors. Overall, however, there is a correspondence between the knowledge levels of workers, proxied by education, and the quality of employment conditions, represented by secure jobs.

Countering the Race to the Bottom

A familiar trope in globalization analysis is that there is no way in which employment conditions can be improved under globalization. Castells (1997) and Burawoy (2010) argued that the mobility of capital, the dispersion of production, competition among producers, and the burgeoning global reserve army of surplus labour (Freeman, 2005) all denied a role for the labour movement. The analysis above of the connection between knowledge levels and the quality of employment also points to low-knowledge GVC segments, such as in garments or leather goods manufacture, having a preponderance of poor-quality jobs. However, is there any scope for raising the floor of job quality in low-knowledge segments, raising the floor above the current national minimum wages set by global competition among supplier firms and countries?

In the first phase of the spread of GVCs, these gloomy predictions seemed to be borne out. GVCs were detached from the institutions that traditionally governed labour practices, such as national governments, trade unions and tripartite bodies. The Washington Consensus policies prescribed market fundamentalism in setting employment conditions. However, is there a Polanyian double movement intervening in GVC-labour relations as argued in Piore (2009), Mayer and Pickles 2014), and Tewari, Nathan and Sarkar (2016)? We end this chapter with a discussion of this important question regarding employment conditions under GVCs.

A number of sources of change and transformations developed within the seemingly iron laws of wages of GVCs. Workers’ agency developed as new centres of concentrations of workers replaced the old manufacturing centres of the Euro-American economy. Concentrations in the Chinese eastern coast, the National Capital Region of India, Dhaka in Bangladesh, and other new centres, all fuelled by the concentration of GVC-based production, emerged as new areas of workers’ associational power (for China, see Silver and Zhang, 2009; Chang, Ngai and Selden, 2016; and for India Sbyam Sundar, 2015). The agency of workers also developed in “everyday forms of resistance” for instance, in back office work (Noronha and D’Cruz, 2016).

A series of high-profile tragedies within GVC production—the revelations of child labour and forced labour, factory fires and collapses, media reports of sweatshop conditions—all this created moral outrage among a set of consumers, leading to demands for ethical trade (Humphery and Schmitz, 2008). Brands and lead firms responded with codes of conduct and audits of labour practices in supplier factories. Threats of losing business controlled but did not eliminate some abuses, such as the use of child labour. This “privatization of labour enforcement” (Applebaum, 2004; Locke, 2013) brought limited benefits. As a review of private enforcement showed, audits worked for matters like the elimination of child labour from the factory floor, but not from home-based work, where audits seldom reached. A detailed review of such privatized initiatives showed that there was a long way to go in achieving living wages and other aspects of decent work (Vaughan-Whitehead, 2014). As Locke put the reason for this gap, “Suppliers are asked to invest in improving labour and environmental conditions, but are pressured to (and rewarded for) producing ever-cheaper goods with shorter lead times” (Locke, 2013: 35).

Binding Agreements including Brands and Suppliers

The GVC agreements include brands and retailers, i.e. lead firms, as key players in affecting labour outcomes. The prices they pay suppliers and the terms of supply, such as volatile orders and short lead times, all affect labour outcomes. However these lead firms are not part of the process through which employment relations are negotiated. These remain a matter for suppliers as employers, the states in which they are contained, and labour. There is a governance deficit with regard to GVCs (Gereffi and Mayer, 2006).

A similar deficit existed earlier, albeit on a national scale, with the separation of designers/retailers from manufactures in the USA’s garment industry. Workers were employed by manufacturers, but the conditions of employment and wages in particular were limited by the prices the oligopolist designers/retailers gave to the manufacturers. After the 1911 Triangle Shirtwaist Factory fire, there was a four-part agreement in which designers/retailers agreed to pay prices to manufacturers such as would enable the latter to pay the wages agreed with workers (Anner, et al, 2014).

But at the global level there do not exist such binding agreements between brands, suppliers and workers. This global governance deficit has been dealt with in a number of ways. One is that of private labour standards embedded in buyer-supplier contracts. These are often checked through audits and social compliance standards. This privatization of labour standards show very limited results, as demonstrated through numerous studies (summarized in Vaughan-Whitehead, 2014).

Another way of dealing with the governance deficit has been through what are called Framework Agreements between global firms and global unions—such as those now part of IndustriAll. Since the first such Framework Agreement with the fast fashion pioneer Inditex (of the Zara brand), there have been a number of such agreements. However, these agreements, for one, are not enforceable in courts of law, and in addition, often do not have sufficient union backing/strength to press for their implementation. However, they do represent the stirrings of the global organization of labour, creating a new global sphere (Beck, 2005: 239) in the process of re-creating itself as a countervailing power in globalization.

A breakthrough in setting up a binding agreement that was binding on the lead firms was secured in the form of the Accord, signed by numerous (though mainly European) brands in the aftermath of the Rana Plaza tragedy in Dhaka. This Accord is binding in that it can be taken to a court of law. This marks a beginning in securing binding agreements, but much more remains to be done. The recent ACT initiative expects to result in national binding agreements, which, however, would be based on what can be nationally negotiated. Setting living wages as the global minimum, however, will require some form of global intervention and regulation.

The question of labour standards in GVCs, or Global Supply Chains (GSCs), as the ILO prefers to call them, was taken up in the ILO’s Annual Conference in 2016. However, in the face of stiff opposition from employers, no progress has been made in this matter. While economic structures in GVCs have global dimensions, employment conditions within GVCs remain without a correspondingly global dimension of governance.

Advancing towards nationally determined living wages as the floor minimum wages would reduce but not end the rents from labour arbitrage. Payment of living wages, however, would require some redistribution of income within GVCs, with a portion of current lead firm rents being earmarked for living-wage manufacture. This would raise the floor of the global wage structure with wages in medium- and high-knowledge GVC segments as multiples of the living wage.

Conclusions

In this chapter it has been argued that knowledge and its associated market power are key parts of the vertical relations between lead firms and suppliers in GVCs. Working in the context of geographically determined institutional and labour market conditions, they determine the structure of employment outcomes in GVCs. Low-knowledge segments such as garment manufacture are associated with largely poor-quality employment; medium-knowledge segments, such as electronics or automobile manufacture, with a medium level of good-quality employment; while high-knowledge segments, such as IT services, are associated with high levels of good-quality employment. Within this structure, however, there is scope for upward or downward adjustment, depending on firm strategies or labour characteristics. A firm strategy to move into higher-knowledge GVC segments may drive supplier firms to institute more secure and better-quality employment in order to subsequently benefit from improved firm performance. On the other hand, the non-market domestic responsibilities of women may force them to accept poorer-quality employment than their educational or knowledge levels would predict.

Along with the above, it has also been argued that a race to the bottom in employment quality, brought about by competition between suppliers firms and countries, can be countered. Strong trade unions in centres of worker concentration can also bring about upward movements in employment quality. They can find allies in moral consumer movements and ethical public procurement. All these interventions in market processes can raise the floor of the global wage structure in GVCs.

References

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