In the present era of economic liberalization due to disempowerment of labor
—numerical decline of the organized workforce, weakening of trade unions and
the consequent decline in the bargaining power of labor have become quite
visible. The question arises as to whether there exists any nexus between the
bargaining power of labor and the flow of FDI. Notwithstanding low and declining
capital-output ratio and high labor efficiency as the obvious determinants of
increasing FDI flow, the Indian scenario suggests that FDI flows to the
destinations where workers have a low and declining bargaining power.
The Foreign Direct Investment (FDI) has become a reality in the present era of globalization.
The FDI flow to the developing countries increased from US$24 bn in 1990 to US$192 bn in
1999 (Asiedu, 2002). The FDI flow to the host countries could not have been arbitrary. The
determining factors of FDI flow therefore, have been analyzed to understand the direction of
flow. The factors identified in various studies have been largely investor-centric i.e., it
emphasizes on the return on the capital invested. From the viewpoint of the gain to labor, the
per capita growth of wage is argued as a positive contribution of FDI flow to the conditions
of workers. But in the present era of economic liberalization with the disempowerment of labor,
numerical decline of the organized workforce, weakening of trade unions (RoyChoudhry, 2004)
and the consequent decline in the bargaining power of labor have become quite visible, the
question arises as to whether there exists any nexus between the bargaining power of labor and
the flow of FDI. The studies on FDI are found to be silent on this question. In this note, an
attempt is made to find its answer particularly in the Indian context.
Every industrial output is the product of labor and capital. Whereas, the productivity of
capital is measured by Capital-output Ratio (Rco) i.e., lower this ratio more productive is the
capital, productivity of labor is measured by per Worker value of Output (Ow) i.e., higher this
value more productive is the labor (Mahanti 2002). But a measure of productivity of labor
could be the value that a worker adds per unit of capital given by the ratio (Vwc) = (Ow- Cw)/
Cw, where Cw is the measure of per worker capital. The absolute wage of the worker is givenby Ww = (Rwo * Cw )/Rco, where Rwo measures the wage output ratio. It is fair to pay a worker
higher wage when there is a rise in productivity. But the increase in wage should be relative
to the rise in productivity and depends on the bargaining power of labor. On the other hand,
if the wage of a worker per unit of value addition measured by the ratio Wv = Ww / (Ow – Cw)
decreases, it suggests declining bargaining power of labor. From the investor’s viewpoint low
and declining Capital-output Ratio (Rco), high and increasing labor productivity (Ow and Vwc),
low and declining Wage of Worker (Wv) provide ideal conditions to invest. Needless to say, low
and declining wage of a worker and declining bargaining power are adverse to worker’s interest. |
