Labor upgrading and export market opportunities: Evidence from Vietnam

Abstract

We explore and provide an empirical assessment of an important mechanism by which global markets can motivate labor-related upgrading among developing country firms. New market opportunities, which result from exogenous shocks, can some producers to improve their treatment of workers. These improvements come because they are consistent with taking advantage of new opportunities. We focus specifically on how shifts in U.S. trade policy toward China in 2018 affect the willingness of foreign firms operating in Vietnam to engage in upgrading. Our analyses, based on surveys of firms in 2016, 2017, and 2018, suggest that firms respond significantly to changes in market opportunities, especially when they are primed to consider specific supply chain relationships. This market opportunity mechanism for upgrading contrasts with another widely used tool, in which developed country governments condition access to their markets upon improved human and labor rights outcomes. The former operates, in the short to medium term, at the firm level, while the latter seeks to effect change at the country level.