Reaction Paper Part I: Identification Alexander Hijzen and Paul Swaim, “Do multinationals promote better pay and working conditions? ” OECD (Organization for Economic Development) Observer, October 2008; Issue 269, pp 15 – 17. Part II: Abstract Summary The article examines the behavior of international business enterprises, also known as multinational enterprises (MNEs), wages and working conditions, from the perception of the Organization for Economic Development (OECD).
It gives a basic definition of a MNE as a corporation with headquarters in one country and affiliates, subsidiaries or merged operations in one or several other countries. Example MNE’s mentioned in the article include: Coca-Cola, Nike, Microsoft, EDF (French energy company), Rio Tinto (British-Australian mining firm), and Toyota. The article notes that there are thousands of MNEs and that they all are not a symbol of Western economic dominance. Some of the top firms listed now in FT one of the UK’s top international business magazines includes China, Russia, India, and Brazil.
First, the article addresses the pro and con opinions that supporters and opponents of globalization bring to the working table of MNE’s. It stresses the fact that no matter what one’s opinion may be, the role of the MNEs in the world economy will continue to grow. Next, the article discusses the nature of MNEs as well as notes their advantages on employment (wages and working conditions). Concerning the wages, the article mentions that MNEs’ technical expertise and modern management styles would provide a basis for higher pay wages.
However, the pessimists doubt the higher pay since the MNEs are typically in a strong bargaining position with local workers. The article explains that the best way to answer the question do multinational promote better pay and working conditions was to present a comparison of local and foreign companies in terms of their labor practices. So a study was completed to report on this question. The study showed that MNEs do tend to pay more than local firms that compete in the same markets. In general the pay is 40% higher.
The study also noted that the pay may be higher to minimize worker turnover and reduce monitoring cost. These results were based upon the report focusing on three OECD countries (Germany, Portugal, and the UK) and two emerging economies (Brazil and Indonesia). Then the author presented the results from the study of those newly hired workers pay vs. those workers who moved from a domestic to a foreign-owned firm, as well as their adjustments to labor practices/working conditions. The study showed higher wages for newly hired workers and small losses or no effect for those moving to foreign firms.
Several previous studies were mentioned which noted that multinational tend to adapt to local practices rather than impose their own. Finally, the author expresses the effect that experienced managers have on MNE’s. It has been proven that local firms that recruit managers with experience in multinationals enjoy higher productivity. They can more easily recognize and enforce internationally accepted labor standards. In the end, it is noted that not only experienced managers but also government support is what will help the MNEs be productive and help development.