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Conceptualizing the Link Between International Labor Standards and Human Capital Presenters were asked to explore the issues related to human capital and core international labor standards and to suggest a future research agenda. THE LINK BETWEEN LABOR STANDARDS AND HUMAN CAPITAL: RAY MARSHALL, UNIVERSITY OF TEXAS, AUSTIN Ray Marshall argued that labor standards play an important role in fostering human capital. After discussing the importance of human capital in general, he summarized the rationales for labor standards in the global economy to introduce the linkages between the two. Marshall said that most people would agree that investment in human capital is critical to improving the human condition. He raised three gen- eral points regarding human capital investment. (1) Human capital is costly; resources for human capital formation are limited, especially in poor coun- tries; and it is important to use these resources efficiently in the production of knowledge and skills. (2) Human capital cannot be considered in isola- tion from overall economic and social policy. In other words, production systems that demand educated labor must be in place if the increased sup- ply of educated labor is to be absorbed. (3) The concept of education should be thought of more broadly than just schooling. Learning takes place out- 4

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CONCEPTUALIZING THE LINKBETWEENILSAND HUMAN CAPITAL side of formal schooling. Families, workplaces, and civic organizations are all important learning systems. Marshall then went on to discuss how labor standards play an impor- tant role in strengthening human capital producing systems. Freedom of association and the right to collective bargaining promote human capital formation through democracy and high value-added development. In the broader definition of education, civic organizations, unions, and other as- sociations are learning systems that develop human capital. People develop leadership skills and learning related to cooperation and trust. Associations also promote democracy and democracy is another important learning sys- tem. As the research of Amartya Sen (1999) and Dani Rodrik (1999) dem- onstrates, Marshall said, people learn better through democratic processes. Through democracy and associations, people have an opportunity to learn from one another, building trust and social capital. He noted, "One of the main reasons . . . that democracy is a good human capital formation pro- cess is Ethat] it provides a voice to workers, which can improve decision- making...." Assuring that workers have a voice improves learning be- tween workers and managers through information sharing. Marshall said, for example, that labor-management safety and health committees are more effective than government or unilateral regulations because joint problem solving combines the knowledge and concerns from both parties to prevent problems. These types of labor-management programs, according to Marshall, "provide more effective training than any of the parties doing it by themselves." This cooperative learning process improves performance of labor standards, as in the case of safety and health. Marshall believes that freedom of association and collective bargaining promotes high value-added economic strategies (strategies that focus on increasing productivity and quality as opposed to reducing wages). In a case where there is income inequality, for example, the uneven distribution of wealth inhibits social and human capital investments needed to improve the conditions of poor people. Unions and collective bargaining can work to counteract this inequality. According to Marshall, high value-added per- formance systems are important because they create a demand for educated people. Marshall then briefly described systematic approaches to addressing the elimination of child labor in a multinational context. Simply prohibit- ing child labor will not be effective; the prohibition must be connected to other activities. He noted that the International Labour Organization (ILO) has effective programs that demonstrate the relationship between prohibi-

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6 HUMAN CAPITAL INVESTMENT tions on child labor, the development of jobs and income-earning opportu- nities, and the provision of schooling. He concluded by saying that one of the most effective ways to break the self-perpetuating cycle of poverty in developed and developing countries is to apply a systematic approach to achieving the goals that labor standards were designed to accomplish: to remove children from the workplace, to educate them, and, at the same time, to overcome discrimination and provide jobs for adults. PLACING CORE LABOR STANDARDS IN THE DEVELOPMENT CONTEXT: GORDON BETCHERMAN, THE WORLD BANK Gordon Betcherman said that implementation of standards occurs within the context of development; it is important to understand the socio- economic context. Societies can do a range of things beyond monitoring and enforcement to ensure compliance. Betcherman presented a concep- tual model of how people think about standards. At one end of the spectrum, the legalist perspective takes a classic view of regulation as a three-stage process: develop standards, determine how to monitor them, and then enforce them. In the case of labor standards, Betcherman argued that the first two stages have occurred, and enforce- ment is now the issue. There are no universal ways to enforce compliance beyond what countries do through their own national legislation. Herein lies the challenge, according to Betcherman. On the other end of the spec- trum is the economic perspective, which takes the viewpoint that develop- ment must precede compliance with labor standards. With economic growth, "countries will naturally . . . build up a demand for good working conditions and, as a result, will naturally start to implement the processes and institutions that will lead to compliance Iwithl core labor standards." Betcherman did not dispute the value of either the legalist or econo- mist perspective, but in order to expand the understanding of the context in which noncompliance takes place, he offered a third perspective. The development perspective, as he termed it, considers the factors that deter- mine noncompliance and how policies and interventions can change the context, alter incentives, and affect outcomes. Betcherman used the example of child labor to illustrate his conceptual model. From the legalist perspective, setting a minimum working age is central to eliminating child labor. But this perspective does not adequately address the root causes of child labor, particularly poverty. Strict enforce-

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CONCEPTUALIZING THE LINKBETWEENILSAND HUMAN CAPITAL ment of a ban on child labor, for example, will make some children and their families worse off because it will remove a source of income and possi- bly drive the children into more dangerous forms of work. From this per- spective, Betcherman said, enforcement is possible, but without other ac- tions, it will not achieve the desired aggregate welfare benefits. The economist perspective acknowledges the poverty link and the real- ity of informal labor markets. Betcherman said that the countries of most concern with respect to core labor standards have an informal employment rate of 30 to 90 percent. He explained that it is important to keep in mind that the labor force in the informal sector is outside the protective reach of government authorities, with no collective agreement to establish rights and no access to court action. He noted that although the economist per- spective acknowledges these realities, it does not adequately address the costs associated with making the transition "from a poorer country with bad working conditions to a rich country with good working conditions." According to Betcherman, while legal institutions and processes and growth-oriented policies are important for the elimination of child labor, the development perspective helps identify other efficient and realistic in- terventions as well. He named three. One key intervention is increased access to education. As an example, he cited Progresa, a Mexican program that provides scholarships and stipends to poor families as compensation for the opportunity costs of sending children to school that is, they re- ceive compensation for the income from working that is lost to the families while the children are in school. Betcherman noted that rigorous evalua- tions of programs like Progresa have demonstrated that they are successful in reducing child labor. Another intervention is the protection of working children. Betcherman noted the importance of acknowledging that some children are working and then providing these children with protections in the form of education, health services, and access to informal learning opportunities. A third possible intervention is to provide social protection instruments. These measures, such as providing low-income families with access to credit, can help reduce the incidence of child labor by addressing poverty. Betcherman said that the relationship between human capital and la- bor standards compliance can be studied conversely. "Not only does more human capital lead to higher compliance, but, at the same time, compli- ance with core labor standards can make a big difference over the long run Al 1 ~~ in investment ant ~ maintenance or numan capital.

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8 HUMAN CAPITAL INVESTMENT A VIEW FROM CAPITOL HILL: STEVE MOODY, OFFICE OF REPRESENTATIVE GEORGE MILLER Reflecting on Betcherman's presentation, Steve Moody noted that those members of Congress who are most vocal about child labor issues are legal- ists. One area of potential cooperation between congressional members with different perspectives is to have those members with an economist perspec- tive speak about how they see the economic side of child labor and why they see it through an economic lens rather than a legal lens. Moody described several activities in Congress that are related to inter- national labor standards. The International Workers Rights Caucus, which has about 60 congressional members, has routine sessions and briefings on international labor rights. Moody also described the trade promotion au- thority legislation that was debated a year and a half ago, pointing out that "the way Congress most Loften] confronts the issue of international labor rights lis through] free trade." The trade promotion authority gives nego- tiators of trade agreements more freedom and lets the president empower them to negotiate these agreements with other countries. One of the rea- sons behind this legislation, according to Moody, is the degree to which trade has become complicated over the last 10 years in the United States. Moody said that there is a growing awareness on the Hill that the problems of labor rights must be approached from various angles: I think that there is an awareness on Capitol Hill that you just can't impose things. That you actually have to come up with cre- ative solutions where you've got NGOs Nongovernmental organi- zations], workers, foreign governments, and the U.S. government trying to come to some kind of solution. This holistic approach, with various actors working together, can be chal- lenging. Moody noted that Congress has made progress over the last 10 years in dealing with international labor rights. But he believes it is impor- tant to educate Congress about the concept of human capital and how it relates to labor standards. Congress is a reactive body, and Moody believes that it is possible to influence congressional thinking with statistics, figures, and studies that show effectiveness.

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CONCEPTUALIZING THE LINKBETWEENILSAND HUMAN CAPITAL 9 DISCUSSION WITH AUDIENCE PARTICIPANTS Audience participants discussed a recent World Bank report on free- dom of association and collective bargaining (Aids and Tzannatos, 2002) and the implications of this report with regard to human capital and policy implications. Betcherman summarized the major findings of the study: "LO]n balance, unions are associated with a more equal distribution of income. There are also some clear relationships with other issues like tech- nology and training." He noted that the macroeconomic results were con- sistent with other studies showing relatively neutral effects. Empirical links between unions, collective bargaining, and economic outcomes depend on the circumstances of a particular country. In terms of the policy implica- tions of the report, Betcherman noted that although it will be one of the things the board considers when the World Bank is developing policy on core labor standards, political dynamics will still be at play. Participants had several questions about the perspectives presented by Betcherman. One question dealt with indicators of compliance and how they relate to the various perspectives. Lisa Lynch, of Tufts University and a member of the Committee on Monitoring International Labor Standards (CMILS), said that the committee is developing indicators of compliance with core labor standards, and the subcommittee on human capital has been struggling with the identification of appropriate human capital indi- cators. She asked how the list of indicators would vary depending on which perspective was taken. Betcherman agreed that indicators would change depending on the perspective. He said that the World Bank is dealing with this issue with respect to child labor and is identifying indicators to determine the scale of child labor programs in client countries. Distinctions are drawn, for ex- ample, between child labor intrinsic to the family in very poor, agricultur- ally based communities and child labor in sweatshops and industrial situa- tions. Betcherman also stated that the availability of data around indicators is another important consideration. "LO]nce you identify Lthe indicators], you almost certainly are never going to get the data to actually operationalize them," he said. The concern about indicators is not just to identify the information that should be collected but also to identify the information that can actually be obtained. Wolfgang von Richthofen of the ILO commented on the heterogene- ity of views concerning core labor standards and the "indubitable linkage" between the standards. The linkage between freedom of association and the

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10 HUMAN CAPITAL INVESTMENT right to collective bargaining and the elimination of child labor has been overlooked, for example, in the economist perspective. He noted that ILO studies consistently find a very low level of child labor in sectors with high levels of organization, and, conversely, where there is no unionization, a very high level of child labor exists. He stressed the importance of looking at the interrelationships between the core labor standards rather than think- ing of some as more important than others.