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Nordic Conference in Development Economics 2015

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Presentation on theme: "Nordic Conference in Development Economics 2015"— Presentation transcript:

1 Nordic Conference in Development Economics 2015
Spillover effects of international standards: Work conditions in the Vietnamese SMEs Nordic Conference in Development Economics 2015 15-16 June, 2015 Neda Trifković

2 Presentation Overview
Introduction Definition of key terms Previous literature Research objectives Data Empirical approach Results Conclusion

3 Introduction Standards are measures by which products, processes and producers are judged Formalise consumers’ requirements about the production process (ethics, environment) or product (safe, organic) Communicate information about attributes of a product or a production process Official and private standards Legally required, issued by governments Voluntary, issued by private bodies or international organisations De facto mandatory in international trade The focus: international standards

4 Introduction Requirements Quality (appearance, taste, texture)
Safety (ex. residues of chemicals, medicines) Social and environmental conditions of production (labour conditions, impact on the environment) Examples of standards ISO 9001 (quality) HACCP (safety) ISO (environment) OHSAS (labour) SA8000 (social accountability) Main motivation: market access, export, increase sales, revenue Common characteristics Adherence to local regulatory framework Employee training (improved safety, new skills)

5 The direct effect of standards on work conditions: Positive or negative?
The effect of standards on wages (through training) If the training has resulted in specialised skills, the expected effect on wages is positive If the training has resulted in routine (easily replaceable) skills, the expected effect on wages is negative The effect of standards on contracts and insurance contributions Compliance with fundamental principles and rights at work and national labour laws Working hours, the content of contracts, the rules for hiring, the payment of social and medical insurance and the minimal salary Without standards firms may pay lower wages and shirk on paying benefits If because of standards the costs of formal employment become too high, firms may be induced to use more informal labour without providing any benefits

6 The indirect effect of standards on work conditions
Indirect effect (through firm performance) Positive or negative? Benefits: higher prices and higher returns Productivity increase, higher and consistent quality and better efficiency of production processes (Caswell et al. 1998) Lower transaction costs, increased market access, growth in market share, reduced customer complaints and increased ability to attract new customers (Herath and Henson, 2006; Herath et al. 2007; Maldonado et al. 2005; Masakure et al. 2009) Costs High costs of implementation Adjustments in the production process Infrastructure, training, hiring qualified personnel or consultants, establishing administrative system High compliance costs and marginalisation of the smallest producers (Henson & Jaffee 2008)

7 Research objectives Earlier literature is mainly focused on the impact of standards on firm performance Scarcely studied: employment conditions How standards affect employment conditions in SMEs? What is the effect of standards on employee wages? What is the effect of standards on formal contracts? What is the effect of standards on insurance contributions?

8 Previous studies Agri-food export sectors and work conditions (Asfaw et al., 2010; Barrientos et al., 2003; Ehlert et al., 2014) The effect of ISO 9000 and ISO certification on firm’s training decision in 5 developing countries (Blunch and Castro, 2005) Change in employment, earnings and worker health and safety with the adoption of ISO 9001 on a sample of firms in California (Levine and Toffel, 2010) Effects of GlobalGAP certification on employment conditions of workers in Senegalese fruit-exporting sector (Colen et al., 2012) Self-selection Unobservable heterogeneity Firm-employee match

9 Data SME survey from 2011 and 2013
CIEM, DoE (University of Copenhagen) and ILSSA 10 provinces (HCMC, Hanoi, Hai Phong, Long An, Ha Tay, Quang Nam, Phu Tho, Nghe An, Khanh Hoa and Lam Dong) Firm characteristics: size, ownership, location, sector, application of standards, technology, etc. Random sampling stratified by firm ownership type Around 2,000 firms in 2011 and 2013 For the analysis, informal firms are excluded Basic requirement of any standard is that the firm is formally registered Employee survey (around 600 firms, around 1,500 employees) Personal characteristics, job features, earnings and other non-wage benefits

10 Data Two questions about standards in the SME questionnaire
Does the firm have an internationally recognized quality certification? Is your enterprise required by customers to meet certain standards of production or abide by certain codes of conduct? To get the information about the types of standards applied Phone survey in 2014 Only firms who stated that they had internationally recognised standard in the 2013 survey round

11 Empirical specification
Work conditions, wijt measured through 3 variables Real wage of production workers (in 1994 VND) Signed indefinite contracts Social and health insurance payments Application of international standards, Sijt Firm characteristics, Fit Individual characteristics of workers, Xjt Sector-province effects, ρsp Robust standard errors clustered at the province and sector level, eij

12 Descriptive statistics
Proportion of firms with internationally recognised standards: 10% Most common standards: ISO 9001, ISO and HACCP Intensity of application Multiple standards certified Applying 1 standard Applying 2 standards Applying 3 standards Number of firms 86 24 5 Proportion of firms 62.8% 17.5% 3.7%

13 Descriptive statistics

14 Worker wages by application of standards (kernel density)

15 Differences between firms by application of standards

16 Differences between firms by application of standards

17 Results The effect of standards on wages (OLS)

18 Results The effect of standards on wages (2SLS)

19 Results The effect of standards on social and health insurance contributions (2SLS)

20 Results The effect of standards on formal contracts (2SLS)

21 Some robustness checks
The effect of standards on wages: OLS and 2SLS estimation on the subsample of firms with only one certified standard

22 Some robustness checks
Difference in difference

23 Some robustness checks
Impact of standards on worker wage (placebo)

24 Conclusions and future research
The application of standards contributes to the improvement of work conditions, evaluated for worker wage, payment of health and social insurance contributions and formal contracts Spillover effects from international standards, implying that standards can contribute to more than market access, export performance or profits Policy message: support investment in standards among the SMEs, as they are one of the major creators of employment and growth in developing economies Far more employees could benefit than they currently do


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