The Outcome of NGOs’ Activism in Developing Countries Under Visibility Constraint

Many Developing Countries ratified ILO Fundamental Conventions and authorized local labor unions. Multinational companies producing in these countries pay more when NGOs campaigns take place and reputation counts. However, whether this external pressure from NGOs benefit local workers outside MNEs affiliates in host countries remains an open issue. Segmented and weak local labor unions often rely on external funding from the North and technical assistance by labor NGOs. They need to increase their visibility in the labor intensive sectors targeted by Northern donations and activism. To address these issues we develop a bargaining model adapted to peculiarities of labor market institutions in developing countries, i.e. external funding and the complementarity with labor NGOs. This model is estimated on data on Indonesian manufacturing firms, before and after the authorization of labor unions, in sensitive and non sensitive sectors. We find that, in sectors with visibility for labor unions, the net outcome on wages of the presence of NGOs is negative. The external fundings imply a distortion in the objective of labor