2. Employment, labour relations and working conditions in EPZs

A major indicator of the success of an EPZ strategy is the number of jobs created. Most zone-operating countries are labour-surplus economies with an urgent need for employment creation, and zones have proved highly effective in this regard. There can be a lot of discussion about the cost-effectiveness of zones as a form of employment creation, and about the quality of those jobs, but in sheer numerical terms the fact remains that zones have produced many jobs.

The zone-operating country which has created by far the greatest number of jobs is China, with some 18 million employed in firms with foreign investment, and many millions more in the Chinese firms operating in the zones. The maquiladoras in Mexico rank second in terms of total employment. The initiative was designed to generate employment along the northern frontier and has succeeded in creating some 900,000 jobs (table 2.1). The growth of maquila on the northern border helped the Mexican Government resolve an unemployment crisis in the area. Employment in the maquiladoras has grown impressively, maintaining an average growth of some 10 per cent per annum. Employment grew 17 per cent from January 1997 to January 1998 to total 958,135. Most importantly, it continues to generate employment at a time when other sectors of the economy do not. OECD figures show maquila manufacturing employment growing by 10.4 per cent in 1995 while non-maquila manufacturing employment fell by 9 per cent.

Table 2.1. Mexico: Employment creation in maquiladoras, 1970-97

	1970	1975	1981	1985	1995	1997
Total	20 300	62 200	130 973	211 968	648 263	898 786
Women			85 691	120 042	314 172	421 697
Technicians			12 545	25 042	71 098	103 168
Administrative staff			7 744	13 052	45 436	64 147

Source: National Statistics, Geography and Informatics Institute, Mexico.

A number of other Central American and Caribbean countries have managed to achieve impressive employment growth through their zone strategies. They often have relatively small populations and zone employment can be a significant component of total manufacturing employment. The jobs created by the zone investors also have the advantage of being in new industries, diversifying the employment profile away from the traditional industries such as bananas and coffee. Costa Rica is a case in point. Since launching its zone policy in 1981, it has created almost 49,000 jobs, mostly in the garment and electronics sectors, and unemployment is now down to around the 5 per cent level.

n.a. = not available.
Source: ILO: La industria de la maquila en Centroamérica (San José, Costa Rica, 1997).

In Guatemala the roots of the maquila industry go back to the mid-1960s, but it was not until 1989 that legislation providing incentives for export industries and free zones was introduced. By 1996, 482 zone enterprises employed 165,945 people, 80 per cent of them female.

In El Salvador the first initiative to establish a free zone got under way in 1974 with the creation of the Bartolo zone. Further development was delayed by the civil war, however, and did not pick up until after 1986 when a new law on export promotion was adopted that permitted the development of private zones. Even then, the number of firms and jobs did not rise dramatically until after 1992 (see table 2.3).

Table 2.3. El Salvador: Employment creation in EPZs

Year	No. of Enterprises	Employment
1986	n.a.	2 079
1992	13	6 500
1996	208	50 000

n.a. = not available.
Source: Same as table 2.2.

The maquila industry in Honduras began in 1976 with the creation of the free zone of Puerto Cortes. However, it was not until the 1990s that the sector really developed, particularly in terms of employment which quadrupled between 1992 and 1996 to stand at 61,162 employed (table 2.4).

Table 2.4. Honduras: Employment creation in EPZs

	1986	1992	1994	1996
Employment	2 586	15 520	48 477	61 162

Source: Same as table 2.2.

The zone-operating countries in Asia mostly exhibit the same impressive employment gains as the examples cited above. The latest data from the Board of Investment in Sri Lanka, for example, show that its six zones and other investment promotion strategies had created 268,800 jobs by January 1998, up from 35,000 in 1986.

The State of Penang in Malaysia has proved highly effective in attracting quality investment, much of it in technology-intensive plants manufacturing hard discs and computer chips. Table 2.5 shows how investment in the Penang zones increased from 31 enterprises in 1970, employing 2,784 workers, to 743 plants and 191,190 workers in 1997. The employment is heavily concentrated in the electronics sector, which accounts for almost 120,000 workers. Investment is taking an increasingly capital-intensive form, however, and employment has declined from a high of 100,953 in 1990, despite the considerable increase in the number of enterprises. This trend is quite understandable given the extremely tight labour market conditions prevailing in Penang. Many of the enterprises based there are having to import workers from Bangladesh, Indonesia and the Philippines. This obliges them to incur significant recruitment, transport and housing costs, and yet they continue to invest in Penang because of its proven track record as a highly competitive export platform.

The case of Mauritius demonstrates the typical employment trajectory of many zones. In the first phase, immediately after the launching of the zone strategy, investment and employment grew quickly, and so it was in Mauritius. Between 1971 and 1980 the number of enterprises rose from 9 to 101 and employment from 644 to 21,642. From 1983 to 1988 investment and employment grew steeply to a point where the labour market tightened and production costs rose. The number of enterprises peaked in 1988 at 591; investment peaked in 1989 and employment a few years later at 90,861 in 1991. Employment then contracted for five straight years before picking up again in 1997 to stand at 83,391. Investors started to leave in search of cheaper production platforms and employment growth flattened out. The Government then reacted to the loss of investment and enhanced its incentives and services, leading to a strong revival in investment after 1992, but employment continued to wane as enterprises introduced more labour-saving technology. The investment is mostly concentrated in the apparel sector where 234 enterprises employed 65,809 people in 1997 (out of a zone total of 79,793), with only 14 enterprises in the electrical and electronic sectors employing 1,041.

Table 2.5. Malaysia: Employment in Penang Development Corporation zones

Year	Number of enterprises	Employment
1970	31	2 784
1980	216	56 012
1990	430	100 953
1996	736	196 774
1997(June)	743	191 190

Source: Penang Development Corporation, Malaysia.

The employment effect of zone investment in the Philippines show an increase in jobs from 23,750 in 1986 to 152,250 a decade later. However, employment more than doubled between 1993 and 1996, with zone investment jumping 255 per cent in 1994 and 449 per cent in 1995. Employment reached 183,709 directly employed in 1997 (table 2.6).

Table 2.6. Philippines: Employment growth in economic zones

Year	Direct employment	Indirect employment	Total	Percentage increase
1987	22 837	n.a.
1994	91 860	137 790	229 650
1995	121 823	182 734	304 557	32.6
1996	152 250	228 375	380 625	24.9
1997	183 709	275 564	459 272	20.6

n.a. = not available.
Source: Philippine Economic Zone Authority.