The Generalized System of Preferences and NGO activism

Can NGOs contribute to the implementation of Labor Laws in a developing country? We exploit as a quasinatural experiment the renegotiation of the Generalized System of Preferences (GSP) between the US and Indonesia in 1994, which induced the Indonesian government to raise the level of the legal minimum wage. Using data from Indonesian manufacturing firms, a diff-in-diff analysis and an event study show that the activism of workers' rights groups helped increase firm-level average wages up to the minimum-wage level, not only inside but also outside the export sector. Labor NGO activism helped to implement the new minimum wage standards in a country that lacked strong governmental institutions.

Automated summary

This study finds that labor NGO activism plays a crucial role in implementing labor laws in developing countries, especially in cases where governmental institutions are weak. It helps firms increase wage levels and meet the minimum wage standards.