2. Employment, labour relations and working conditions in EPZs

Wages

It is often assumed that wage rates are the principal factor determining the choice of production platform, and EPZs are often characterized as enclaves of cheap labour. Comparisons are often made between the minimum wages in zones and those applying in the home countries of the multinationals located there. The remuneration of zone workers, however, is a very complex issue which has four distinct components. Firstly, minimum wage rates apply in most zones, either the national rate or a rate determined specifically for the zone. Secondly, the take-home pay of the zone workers is generally greater than the minimum wage might suggest because it is common for zone enterprises to use piece-rate or incentive pay systems. Thirdly, unit labour costs are even higher because zone employers are often providing non-wage benefits and other contributions on top of the basic wage. For example, a major high-technology multinational which has recently invested in China (regarded as a "cheap wage" destination) told an ILO mission that the non-wage benefits and social security contributions increased their unit labour costs by 63 per cent over the basic wage. Wage data can easily be misleading. Finally, the choice of a production platform may depend as much on productivity as on wage rates. The discussion of wage rates alone does not explain the distribution of production on a global scale. There are significant amounts of investment flowing into zones in high-wage economies. Singapore, Malaysia and Mauritius provide example of this. This is explained by the higher productivity in these countries. Therefore, labour cost should be considered together with productivity in order to appreciate the unit labour cost. The latter is a more revealing indication.

Pay varies considerably between zone and non-zone enterprises. It is a rather surprising fact that minimum wage rates (where they exist) and take-home pay are often higher in zones than in comparable factories outside the zone. This is usually because of one of the following reasons:

• in some countries zone employment has negative connotations and zone employers are consequently obliged to pay a premium to get workers to come and work for them
• in tight labour markets wage rates rise
  

• zone enterprises are often large multinationals which can and do pay better than local employers

• zone enterprises generally use remuneration systems such as piece-rate or incentive schemes which give workers a higher take-home pay, although this often implies longer hours of more intensive work than in non-zone enterprises.

Bangladesh is an example of a zone-operating country in which the national minimum wage does not apply, but the zone authority has set its own, zone-specific, minimum wage. The Bangladesh Export Processing Zones Authority (BEPZA) specifies a minimum wage for zone workers in each skill category. This is higher than the national minimum wage at all skill levels, and higher than in the export garment industry and other comparable industries as well. It was 40 per cent higher than the national minimum for unskilled workers in 1996, 15 per cent for semi-skilled and 50 per cent for skilled workers.