The Impact of International Outsourcing on Unionization and Wages: Evidence from the Apparel Export Sector in Central America

This article interrogates the common industrial relations assumption that increased manufacturing jobs will create increased unionization rates and increased wages in developing countries. The author posits that the international segmentation of labor markets is one of the more significant factors in explaining lower union density and wages in export processing zones than in traditional, integrated manufacturing firms in Central America. Segmentation of the labor market forces small firms to compete for limited contracts and increases labor costs as a percentage of total costs, which combine to weaken labor’s ability to leverage organizing and wage gains. The author uses empirical data on union density, an examination of industrial restructuring, and an analysis of labor law schemes in the context of the outsourcing of manufacturing jobs to Honduras and El Salvador, to show that manufacturing jobs, when part of a segmented production model, do not have a positive impact on unionization and wage rates. The author's analysis also suggests that more friendly labor regimes mitigate some of the pressures created by segmented markets and that re-centralization of production would provide some organizing advantages to labor.