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