Types of ZSR
Pay
How ZSR can be implemented:
- Salaries in factories and secondary non-factory employment should be at appropriate levels for migrants and locals to sustain decent livelihoods in the area surrounding the SEZ.
- Salaries in factories should consider the hours, speed, type and risk of labour involved.
- There should not be significant discrepancies between the wages (or other conditions) of those hired directly by firms in the SEZ, and those contracted indirectly through labour agencies.
Overview of the problem:
A positive outcome of SEZ-based employment is that wages paid to host country workers may generally be higher than wages in other factories outside zones. This is likely to be a function of the types of firms that invest, with companies setting up in zones often of larger size and conducting larger, more formal operations compared to the smaller, less formal types of manufacturing that may accumulate elsewhere. However, in smaller, less formal and less regulated zones, often those that are privately-owned and -operated, there may be no minimum size or other specific investment requirements, hence low wages are likely to be more prevalent. Even where wages in SEZs are above average for the sector or region, workers may nonetheless consider them to be too low for the hours, speed and/or type of labour involved.
SEZ workers are often limited in their ability to negotiate higher wages (see also Labour standards). Restrictions on engagement in any form of unionisation or collective bargaining, either as a function of formal SEZ-related legislation that prohibits unionisation or strike action, or as a result of local, informal suppression of labour organising, serve to keep wages lower than may otherwise be the case.
Low wages restrict workers’ ability to lead a decent life in the area around the SEZ, especially in cases where accommodation rental charges and other living costs are high. This has multiple negative effects, not only for workers but also for local communities, which do not benefit from the increase in consumption that usually accompanies large-scale in-migration., and fFor migrants left-behind family members and migrants’ areas of origin, since remittances of income from factory work may not be adequate to transfer developmental gains to left-behind family members and migrants’ villages and areas of origin.
Examples:
Surveys conducted in Ethiopia’s Eastern Industrial Zone suggest that average wages among Chinese factories were considered ‘low’ by workers, even though they were well above reported national averages in the formal sector, and above sector standards (Fei, 2018; Thiel & Giese, 2015). This may relate to the rapid speed at which assembly line operatives are expected to work, to the long working hours or to the perceived level of risk of industrial accident.
However, it has been noted that labour disputes in Ethiopian industrial parks tend not to focus on wages, but instead on broader working conditions including working hours, canteen food and mistreatment, in contrast to labour disputes outside parks which are heavily focused on wages (Oya & Schaefer, 2021). This may imply both that wages inside parks are higher than those outside, and that a broader range of issues are of concern to workers inside parks.
Casual low-skilled factory labourers in the Lekki Free Zone in Lagos State were paid daily wage rates of 5,000–10,000 naira (USD 5–9), with wages paid on a weekly basis. Workers hired on longer-term contracts earned between 50,000 and 100,000 naira (USD 43–87) per month. These rates compare favourably to Nigeria’s national monthly minimum wage of 30,000 naira (USD 26). If a casual labourer were selected every day for work, and took on additional overtime work wherever possible, he or she could earn around 90,000 naira (USD 83) a month. (Goodburn, Knoerich, Mishra & Calabrese, 2024). The relatively high rates of pay may relate to Lekki’s status as a large, state-owned SEZ, located close to Nigeria’s largest city Lagos. The SEZ’s minimum size and investment requirements for firms also make it more likely that employment will be relatively well remunerated.
The earliest studies on labour relations immediately after India’s 2005 SEZ Act found that workers in the Noida SEZ in India’s National Capital Region were typically paid less than those in nearby industrial areas (Bhandari & Almas, 2006; Dasgupta & Sen, 2007). However, more recently the wages paid outside and inside the SEZ have converged (Mishra, forthcoming). This is not because of any increase in SEZ wages, but rather because wages elsewhere have suffered on account of increased hiring of temporary contract labour.
Jobs in the factories of Uganda’s Liaoshen Industrial Park are mostly low paid, even relative to other low-skilled local jobs such as domestic work or farm labour. Worker pay starts at 3,000 shillings (USD 0.78) per day, increasing to 10,000 shillings (USD 2.62) as workers gain skills and experience. Wages are paid fortnightly. Starting wages appear significantly lower than UNESCO’s estimated 2019–20 Ugandan average monthly wage for uneducated workers, at 143,045 shillings (USD 26 at 2020 rates). For workers on longer contracts, monthly salaries are up to 100,000 shillings (USD 26). These rates may be influenced by Liaoshen’s status as a relatively small, privately-owned zone located in a predominantly rural area, with no minimum size, investment requirements or other restrictions on investors. Local Baganda people mostly avoid factory work in Liaoshen, as pay is considered too low and conditions too poor for any but the most impoverished (Goodburn, Knoerich, Mishra & Calabrese, 2024). Even migrant workers from other parts of Uganda sometimes found they could earn more working locally as farm hands or domestic servants.
Low wage rates are compounded by many ‘deductions’ from wages, not only for meals and (in a few firms) dormitory accommodation, but also for mistakes in production, breakages, lateness, low productivity and other issues. Pay may also not be forthcoming during compulsory training periods. Workers are afraid to take time off when ill, as they do not receive pay for days missed, and might not be permitted to return to work at all (Goodburn, Knoerich, Mishra & Calabrese, 2024).
Jobs in Liaoshen Industrial Park are not limited to manufacturing work, but include service sector work such as catering, where locals have set up kitchens to sell meals to factory workers. In Uganda, such self-employment usually generates much better incomes than factory jobs, but is typically more informal and less stable.
The case of China:
China’s first SEZs, set up in from 1980, offered typically much better pay and other benefits than the alternative forms of factory labour available at the time (mostly Township and Village Enterprises or state-owned firms). Preferential policies for foreign investors in SEZs have been shown to have led to a significant increase in the incomes of workers (Wang, 2013). SEZs not only had the highest minimum wage levels in China, but were the first areas to introduce minimum wage laws, as early as the 1980s. By 1999, by law, wages in SEZs were 120–150 per cent higher than average wages in the state-owned factories typical elsewhere in China (Ge, 1999). Benefits of SEZ employment included a social insurance package, a minimum wage, and compensation based on a base rate of pay, occupational pay and an allowance (Zeng, 2010). After the 1990s, however, SEZ wage rates began to decline relative to increasing pay in China’s large state-owned firms (Tantri, 2013).
China-associated zones overseas
In China-associated SEZs overseas, many Chinese firms are known to pay better wages for assembly line and other work in comparison to domestic firms, even those that also manufacture within SEZs (Goodburn, Knoerich, Mishra & Calabrese, 2024). Recent large-scale surveys have indicated a higher, or at least not lower, rate of pay in Chinese manufacturing firms, with wage differences driven primarily by individual worker characteristics, location effects, and sector of employment (Oya & Schaefer, 2023). Investigations in Ghana have also indicated that Chinese manufacturers paid above the national minimum wage and above the rate offered by Indian comparator factories (Akorsu and Cooke, 2011). Moreover, in Ethiopia, labour disputes within industrial parks have centred on non-pay-related concerns, whereas pay has been the main complaint in 95% of strikes outside parks, suggesting that China-associated economic zones may pay more highly than elsewhere within the host country (Oya & Schaefer, 2021).
The reasons for the higher wages may relate to the fact that many Chinese factories are engaged in relatively more technical and precision-orientated manufacturing and assembly work, with a high speed of processing, and thus are keen to retain experienced workers beyond a minimal period. Nevertheless, some studies conclude that Chinese firms in Angola, Ghana, Namibia, South Africa and Zambia tended to pay lower wages compared to local and other foreign companies (Baah & Jauch, 2009).
Further reading
Gebrewolde, M.T., 2019. Special Economic Zones Evidence and prerequisites for success. IGC Policy Brief. Available at: https://www.theigc.org/sites/default/files/2019/05/SEZ-policy-brief.pdf
Oya, C., & Schaefer, F., 2023. Do Chinese firms in Africa pay lower wages? A comparative analysis of manufacturing and construction firms in Angola and Ethiopia. World Development, 168, 106266. https://doi.org/10.1016/j.worlddev.2023.106266