Green Practices Boost Exporters' Productivity but Wage Gains Remain Uneven

The 2024 ILO report, "Adopting Green Measures in Exporting Firms: What are the Effects on Labour Market Outcomes?", reveals that while green practices in exporting firms boost productivity, wage gains are uneven across different income-level countries. Workers in high-income countries benefit from higher wages, but in middle-income nations, wages have not kept pace with productivity growth. The report highlights the need for stronger labor institutions to ensure fair wage distribution and emphasizes the importance of training and skill development in green-exporting firms.

Exporting firms are increasingly embracing green measures as part of their operations, but how do these environmentally friendly practices affect their workers? According to the 2024 International Labour Organization (ILO) report "Adopting Green Measures in Exporting Firms: What are the Effects on Labour Market Outcomes?" by Nicolas Maître and Pelin Sekerler Richiardi, adopting green processes can bring mixed benefits, particularly when it comes to productivity, wages, and employee training. The report sheds light on the nuanced impacts of going green, especially in firms involved in international trade, revealing some surprising disparities in how these changes affect workers across different income-level countries.

Green Measures Lead to Higher Productivity

One of the report’s central findings is that exporting firms are significantly more likely to adopt green practices than non-exporting firms. The data from the World Bank Enterprise Surveys (2018-2020) indicates that 81% of exporting firms implemented at least one green measure, compared to 71% of non-exporting companies. But what’s more interesting is that these measures go beyond symbolic gestures; exporters are adopting a larger number of green processes on average.

This shift to greener methods has a notable effect on productivity. Exporting firms that adopt green practices often experience productivity gains that set them apart from firms that don’t embrace these changes. By upgrading equipment, managing energy use more efficiently, and adopting waste reduction strategies, green-exporting firms are making tangible improvements to their output.

However, this increase in productivity doesn’t always translate into immediate benefits for workers. While green exporters are generally more productive, workers in middle-income countries are not necessarily seeing a corresponding rise in their wages.

Wage Gains and Disparities

In high-income countries, there is a clear link between increased productivity and higher wages. Exporting firms that go green tend to reward their workers with better pay, aligning with improved productivity levels. Unfortunately, this trend does not hold in lower-middle and upper-middle-income countries, where wage gains have been less pronounced despite the productivity boost.

The report suggests that several factors contribute to this wage disparity. One of the major issues highlighted is the weak labor institutions in many middle-income nations. Without strong collective bargaining mechanisms or effective wage-setting policies, workers in these countries are often unable to negotiate for their fair share of the productivity gains made by their employers. This highlights the need for policymakers to strengthen labor market institutions to ensure that productivity growth benefits both the firms and their employees.

This gap between productivity and wages could also exacerbate existing inequalities in the labor market, particularly in developing countries. Exporters, already benefiting from their exposure to international markets and customers, are seeing their operations thrive, but these successes are not filtering down to the workforce in a meaningful way.

Training and Skills Development

Despite the wage disparities, exporting firms that adopt green practices are offering more in terms of employee development. The report finds that green-exporting firms are more likely to invest in formal training for their workers compared to other firms. This training is essential as workers need new skills to handle greener technologies and processes, such as managing waste more effectively or operating energy-efficient machinery.

Interestingly, while exporters without green initiatives also provide training, the firms that combine exporting with green measures have the highest likelihood of offering such programs. This not only enhances the skills of their workforce but also boosts productivity and job satisfaction, which in turn can contribute to the overall success of the company.

The findings show that firms involved in the green transition are creating more opportunities for workers to develop their skills, making them more competitive in the job market. For firms, this investment in training translates into long-term benefits, as a more skilled workforce often leads to greater innovation and improved business outcomes.

Bridging the Wage-Productivity Gap

The ILO report makes it clear that while the adoption of green measures in exporting firms leads to increased productivity, this does not always translate into higher wages, particularly in developing economies. The solution to this complex issue lies in stronger labor market policies that ensure productivity gains are more equitably distributed. In countries where wages have not kept pace with productivity, strengthening wage-setting institutions, such as minimum wage laws and collective bargaining agreements, could help workers secure better pay.

Overall, the findings from the report emphasize the importance of aligning environmental goals with fair labor practices. Exporting firms, particularly in middle-income countries, must be encouraged to share the benefits of their green initiatives with their workers, ensuring that both businesses and employees thrive in the green economy.