Impact of labour unrest and skilled workforce in host country on inflow of foreign direct investment – a case of Taiwan, ROC

Abstract

PurposeIn this paper, the authors examined the changes in labour unrest and labour quality brought by high labour standards over a considerable period in Taiwan. Then, the authors studied the role of these changes in predicting the inflow of foreign direct investment (IFDI) in the country. To test the role, the authors measured the differences in effects of the two changes on wages, working hours and employment opportunities of skilled female and skilled male workers in FDI-intensive and non-intensive industries.Design/methodology/approachUsing a model built on pooled cross-sectional time-series data from 1999 to 2012, the authors measured the effect of changes in labour unrest and the presence of skilled workers on the net inflow of FDI. Using data from the Manpower Utilisation Survey (MUS), the authors applied differences–in–Differences-in--ddifferences- (DDD) and differences–in–Differences-in-ddifferences-in--differences- (DDDD) estimation methods to test the effect of changes in labour unrest and labour quality on three labour market outcomes, namely wages, working hours and job opportunities of skilled workforce.FindingsIncreasing labour unrest affected the employment opportunities of almost every unemployed person seeking skilled jobs in Taiwan. When the authors compared the adverse effect of high labour standards on employment opportunities and working hours, the authors found women looking for skilled jobs in foreign-owned firms to be the worst affected. Besides, foreign firms paid different wages to skilled educated men than what foreign firms' domestic counterparts paid to skilled educated men employed in Taiwanese firms.Practical implicationsAn in-depth analysis of changes in labour unrest and presence of skilled workers because of high labour standards and the extent to which such changes helped the nation to attract FDI should be useful to policymakers interested in understanding the impact of legislative measures and policy reforms on labour market outcomes across industry types, which matter to foreign investors. If changes in labour unrest and labour quality influenced the inflow of FDI more to firms in one set of industries than the others, the same should have a bearing on revamping of future enactment and enforcement in Taiwan.Originality/valueCurrent study findings would not only provide broad lessons to policymakers in Taiwan but findings of the authors' country case study should be able to guide growing economies that are equally careful whilst raising the labour standards as most fear that high labour standards can deter inflow of FDI because of increasing labour cost.