Wages and Working Conditions in Global Value Chains: The Relevance of Foreign Ownership in New Sourcing Countries

Abstract

The debate on the relationship between labour conditions in manufacturing sectors and global value chain (GVC) participation takes a new turn with the emergence of Sub-Saharan African (SSA) economies as important sourcing destinations. With lower levels of economic development, and significantly lower wages than most other exporting countries, the question is how the insertion of SSA firms in GVCs affects workers in these countries—and who reap(s) the benefits. Interestingly, foreign owners of manufacturing facilities have received little scholarly attention, in contrast to the heavily scrutinized multinational companies (‘brands’) that buy from them. This article studies the Ethiopian apparel sector, which has sought integration in the global apparel chain exclusively on a cheap labour ticket. On the basis of unique worker-level data, we analyse wages and working conditions, comparing foreign- and domestic-owned factories, and those producing for export or the domestic market. We find that workers in foreign-owned factories producing for GVCs have significantly lower wages and freedom of association, but better occupational safety and health than their peers in factories producing for the local market. We conclude that to alleviate poverty and poor working conditions in GVCs, global buyers are not the only key players to consider.