of 31 percent in 1975 to 23.9 percent in 1993. Over the 1975-93 period, domestic raw
material have only captured some 1-2 percent of the gross value of production
With regards to technological transfers and spillovers, zones are, for the most part,
labor intensive, low-tech assembly firms, with no access to advanced technology. They tend to
be dominated by a specific industry, with the first/early major firm influencing the nature of that
industry (see tables 5a and 5b)
. Some zones, such as the ones in Sri Lanka and Indonesia,
are dominated by the garment industry. Others specialize mostly in electronics. For instance, in
1979 in Malaysia, 74.5 percent of the firms were engaged in production of electronic goods
(Weersma-Haworth, 1996). With regards to the latter, Warr (1989) points to the fact that
foreign firms keep research activities and high-end production processes at home and protect
their high-tech secrets well. Furthermore, in industries such as garments, technology has not
changed in many years, so there is really no new transfer occurring.
The enclave economy that results from lack of linkages and technological spillovers
leads many in the host economy to question the value of a policy such as an export processing
E. Employment Effect on Local/National Economy
Salaries and benefits represent the largest chunk of the national content in maquila production. This
share has also been declining from a high of 19.1 percent in mid-1970s to 13.3 percent in 1993.
That is, once an early/first major firm identifies the comparative advantage in locating in a specific zone,
other firms specializing in the same industry tend to locate there as well. We could view it as the late
arriving firms “free riding” on earlier established firms who have shouldered the cost of researching
and identifying a zone with comparative advantage in their shared area of production.
See, for instance, Broad and Cavanaugh, 1993
Job creation is considered one of the primary goals and one of the most important
contributions of any EPZ to the economy. This goal is based on two assumptions. The first one
is that the country has high unemployment or underemployment. This is a reasonable
assumption and the argument would work only until the excess labor is absorbed. Then the host
nation faces a tight labor market and rising labor costs. Of course, rising labor costs translate
into higher labor income, and improving workers’ living standards. However, they may also
make EPZs and domestic exports less competitive in the world market. It may even deter
future firms to choose this nation due to its higher variable costs or even encourage footloose
EPZs to relocate to cheaper shores. This is occurring in Mauritius. According to Alter (1991),
the unemployment rate in Mauritius fell from 14 percent in 1985 to less than 3 percent in 1989.
The island nation has since experienced very tight labor markets and increasing wages .
The second assumption equates creating jobs with alleviating unemployment.
EPZs have created jobs, and where successfully managed and developed, a remarkably
high number of them. For instance, the zones in the Dominican Republic employed 504
workers in 1970. By the end of 1988, this number had reached some 85,468 or 4 percent of
the total employment in the economy (Dauhajre, et. al., 1989). ILO(1998) estimated the 1996
employment numbers to be 164,634..
With an unemployment rate of approximately 20%, it is uncertain whether the
Dominican economy would have been able to create this number of jobs and its resulting
income in the absence of EPZs. For the workers, the alternative to EPZ employment is often
unemployment, underemployment or return to village subsistence life. If the workers are
unemployed, their opportunity cost is zero and any new activity – including that of EPZ firms –
which expands employment will have a high economic rate of return.
This situation is not specific to the Dominican Republic economy alone. It seems to
hold for a majority of developing countries in which EPZs are active.
Note, however, that there are also a multitude of countries where the development of a
zone and the resulting employment creation did not live up to expectations. Senegal is such a
case (see table 3 and section V.B.). The poor choice of location and unsatisfactory
infrastructure led to only partial occupancy of the zone in the case of the Philippine’s Bataan
zone. Employment reached a high of 20,788 in 1980 before falling back down to 13,639 in
1988 By April 1995, paralleling an overall expansionary period for EPZ activities in Philippines
and around the world, the Bataan zone employment had bounced back substantially to reach
However, the socially explosive unemployment issue has not necessarily been resolved
for a majority of the countries for two reasons.
EPZs have created jobs and absorbed labor from the host countries. However, as can
be seen in table 6, the annual increase in the size of the labor force in some of these
nations dwarfs such an unemployment alleviation. For instance, in the Philippines in
1997 EPZs employed almost 183,709 workers. Although this number is remarkable, it
only constitutes 0.59 percent of the 30.88 million in the labor force that year. The
increase in the labor force from 1995 to 1996 alone was some 1.4 million workers. In
others, such as the Dominican Republic, EPZ job creation is important, employing some
5 percent of the labor force.
EPZs were established in the hopes that they would absorb some of the male
unemployment rampant in many of these countries. However, it seems that across the
board, a large portion, if not a significant majority of the jobs in the EPZ zones are held
by women. For instance, in the Caribbean EPZs approximately 80 percent of the labor
force is female (Dunn, 1994). In Mexico, in the late 1980s, 54 percent of the work
force in the maquiladoras were female (Summerfield, 1995)
. In 1995, women
constituted 74 percent of the work force in the Philippines 4 public zones. This is
especially true in EPZs specializing in garment production.
F. Women and EPZ Employment
Women, many young (16 to 25) and single, are attractive as prospective employees for the
They don’t stay on the job for a long time (most marry and leave after a few year), and
therefore, do not tend to get involved with an organized labor union.
Plant managers prefer to hire women because they are diligent and dexterous
Women are paid a lower average wage than their male co-workers.
Tzannatos and Kusago (1997) claim that there is a downward trend to women employment.
This can be argued from two different perspectives. The neo-classical economist would argue
that the shadow price of the women’s work is lower since most did not have “formal” sector
jobs previous to the establishment of the zone and might have stayed at home in its absence.
Furthermore, they are unskilled with no or little work experience. The lower wages represents
their lower skills and productivity.
A more matter of fact analysis is that firms erroneously (or opportunistically ) believe
that women’s salaries is supplementary to the main family income (husband’s income), and
therefore need not be as high as their male counterparts. Romero (1995) argues that some of
the wage differential is due to the gender bias in recruitment and promotion.
A majority of the women working in these firms are young and single. According to
Dunn (1994) a good number of them may be single heads of household as well. For instance, in
the Dominican Republic, “a 1981 survey found that for 38 percent of women working in FTZs,
wages were the main source of household income and that almost one half of the women were
divorced, single or widowed”
. ILO (1998) reports that in Guatemala 45 percent of female
zone workers were single mothers while in Honduras 22 percent of women reported that they
were the sole source of income in the household. Another 73.5 percent stated that they
contributed fifty percent or more of their wages to the household.
Women have become the unintended beneficiaries of the formation of EPZs, since
many might not have sought formal market employment (with its higher salary and other
potential benefits) were it not for them. They may have remained fully or partially employed in
Dominican Republic, CEM document, The World Bank.
the informal market or stayed at home. For example, women constitute 70 percent of the
workforce in Bangladesh’s Chittagong EPZ, a much higher ratio than the national average (ILO
As such, EPZ employment affords women an independent source of income and more
status within the household and society as a wage earner. For instance, in the Dominican
Republic, many consider the EPZs as an important factor in decreasing the share of female poor
from 22.6 percent to 15.8 percent over the 1986-1993 period
Such an employment and income opportunity, however, does not necessarily alleviate
women household responsibilities (such as cleaning, cooking, and child rearing). So that they
will shoulder what is commonly known as a double-shift workload: a full shift at work and
another one tending to household needs.
This status gain comes with a few other caveats. In many cases the division of labor
within firms leaves men in supervisory and managerial positions while women’s jobs tend to be
clustered on the production floor, where there is less opportunity for advancement and
promotions. For example, in Bangladesh’s Chittagong EPZ, the proportion of female workers
categorized as “production worker” is much higher than the male proportion (98.4 percent to
79 percent). Concurrently, women are largely under-represented in the “technical” and
“salaried employees” categories, signaling that women are disproportionately assigned to low
skill/low pay jobs (ILO, 1998). Of course, this does not mean that women are locked out of
Information provided by James C. Hanna, World Bank 1998.
supervisory and managerial positions in all EPZs. For instance, in the Dominican Republic,
many (not to say most) supervisory positions on production floors were held by women
Dunn (1994:25) also notes that women’s jobs are “labor-intensive, segmented,
monotonous, repetitive and require few industrial skills”. Their male counterparts fare better in
both salary and learning of industrial skills.
But most importantly, because of taste or economic changes in countries importing the
EPZ products, and lack of employment protection, women’s jobs tend to be less secure than
their male co-workers
. These latter tend to be unionized and working in industries that are not
as readily affected by demand shifts in developed markets. Dijkstra and Aleman (1996) remark
on this job insecurity in the El Salvadoran case. They describe zones jobs as more like seasonal
work than a permanent ones, with contracts lasting 3 to 6 months. They also note the low skill
intensity of production and assembly activities.
This insecurity and cyclicality of employment is also connected to the footloose nature of
EPZ firms. Warr (1989) discusses this characteristic at length. Broad and Cavanaugh (1993)
and Dijkstra & Aleman (1996) verify it in the case of Philippines’ Bataan zone and El Salvador
respectively. However, a minority in the literature disclaims this categorization. According to
UNCTAD (1993), these firms are far less “footloose” than is commonly believed.
Interview and post-interview notes with J. Alvarez, World Bank, 1997.
This “cyclical or insecure aspect of the EPZ employment was confirmed by J. Alvarez in an interview
regarding Dominican Republican zones. However, Mr. Alvarez and other experts also point out that
workers seem to consider the EPZ jobs as a type of short term contract work. They also emphasized
the fact that these workers do not have promising domestic employment alternatives, and would
probably be unemployed if it were not for the zone work.
Documents you may be interested
Documents you may be interested