Working Conditions, Export Decisions, and Firm Constraints-Evidence from Vietnamese Small and Medium Enterprises

Abstract

Better working conditions promote employee creativity and loyalty. Meanwhile, a stable and skilled workforce contributes to a firm’s sustainable growth. Therefore, providing favorable working conditions is one of the critical sustainable goals of many countries worldwide. However, some critics are concerned participating in international trade causes worsening employment conditions in developing countries. Driven by these concerns, the relationship between exports and labor conditions is worth illuminating. This study adopts the data from Vietnam’s small and medium-sized manufacturing enterprises (SMEs). The dataset was collected by the Ministry of Labour, Invalids and Social Affairs (MOLISA) and the University of Copenhagen, UNU-WIDER from 2011 to 2015. Unlike previous studies, this study clusters firms by export status, including four groups: non-exporting, consecutive exporting, start-exporting, and exit-exporting. Observing dynamic exports sheds light on the effects of export decisions more thoroughly than the static export. Another contribution, this study focuses on an essential aspect of working conditions: providing fringe benefits. Subsequently, the analysis is upgraded by controlling for firm constraints as interaction variables. A major constraint and financial constraint are adopted to proxy for a firm’s constraints. This work promotes assessments to be more accurate, thereby providing more valuable information to policymakers. Finally, a robustness test is applied to each type of fringe benefit. Instrumental variables are used to solve the problem of endogeneity. The results found that exporting firms provide better working conditions. Additionally, constrained firms have worse working conditions.