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Globalization and the Gender Earnings Gap in the Apparel Industry

Gladys Lopez-Acevedo's picture

The 2012 World Development Report, Gender Equality and Development, argues that gender equality “contributes to economic efficiency and the achievement of other key development outcomes.”  U.S. Secretary of State Hillary Clinton stated at the APEC Women and the Economy Summit that “the increase in employment of women in developed countries during the past decade has added more to global growth than China has, ” and argued that incorporating women into the formal workforce is critical for economic progress.  Understanding how major policy changes affect women’s employment and the gender wage gap is therefore critical for implementing future policies that may affect women’s status and opportunities.

The Multi-fibre Arrangement (MFA), a major policy governing the textile and apparel trade between industrialized and developing countries since 1974, was terminated on January 1, 2005. The end of the MFA had significant implications not only for exports, but also for apparel workers. Apparel is perhaps the most prominent labor-intensive and female-intensive globalized manufacturing sector in many developing countries. Due to its low-skill labor requirements, the apparel industry is often seen by economists as a “gateway” into manufacturing for workers whose alternatives include agriculture or the informal labor market (including domestic service, sales, and child care). The apparel industry is also a major source of formal employment for women who constitute a major share of the apparel employment in many countries.

Our recent paper, “The Female Wages in the Apparel Industry Post-MFA: The Cases of Cambodia and Sri Lanka,” analyzes the post-MFA changes in female wages and working conditions in the apparel industry in Cambodia and Sri Lanka. Apparel is the key manufacturing industry in Cambodia and Sri Lanka. The apparel exports accounted for 70 percent of total manufacturing exports in Cambodia and 40 percent of the country’s total exports in Sri Lanka. Female workers dominate the apparel sector employment in both countries, making up 83 percent of apparel employment in Cambodia and 73 percent in Sri Lanka. The MFA phase-out was a major concern for both Cambodia and Sri Lanka because of the expected competition from cheaper Chinese products. Women workers were expected to be affected the most by the MFA phase-out, since they constitute the majority of apparel industry employment in both countries.

Despite gloomy post-MFA expectations, the apparel industries of both Cambodia and Sri Lanka managed to increase export volumes, maintain world market shares, and grow at a healthy rate, outcomes that may eventually have poverty-reducing implications. The resilience of the industries in these two countries can be explained by several factors. The United States and the EU established safeguard quotas against imports from China from 2005 until the end of 2008, which mitigated the impact of the MFA phase-out. Other factors such as proactive policies, industry ownership, and background were also important.

Under the assumption that women contribute more apparel-specific labor input than men and that the apparel sector is a female-labor intensive sector, a theoretical model presented in the paper predicts that a negative price shock will translate into a relative decline in apparel wages compared to other industries in the short run and a relative decrease in female wages compared to male wages across all industries in the long run.

Our empirical analysis supports these predictions. We find that the apparel wage premium dropped immediately following the MFA phase-out in both countries. Even though the industry wage premium improved in the following years, it never regained its pre-MFA phase-out levels. Furthermore, the male-female wage gap widened in the post-MFA period in both countries.