Trade and labour standards: theory and new empirical evidence

Abstract

Recent trade negotiations, both at the regional and multilateral level, have seen a resurgence of the issue of trade and labour standards. Labour interests in high-standards countries argue that low labour standards are an unfair source of comparative advantage, and that increasing imports from low-standards countries will have an adverse impact on wages and working conditions in high-standards countries, thus leading to a race to the bottom of standards. For low-standards countries, there is the fear that this is just a form of disguised protectionism and that the imposition of high labour standards upon them is equally unfair since it will erode their competitiveness, the latter being largely based on labour costs. Our objective in the present paper is to cast some light on the above debate from both a theoretical and empirical perspective. In particular, we first discuss some possible theoretical links between labour standards and comparative advantage through their effects on the terms of trade. We then investigate empirically the relationship between labour standards, comparative advantage and export performance. Overall, our empirical results suggest that caution should be exercised before drawing broad conclusions on the magnitude and direction of these effects.International trade, labour standards, comparative advantage,

Labor Standards and Economic Integration in the European Union: an Empirical Analysis

“…Our results therefore confirm those of Rodrik (1996) and Dehejia and Samy (2004), who used cross-sectional data for large samples consisting of both developed and developing countries. Since our primary interest was to consider the individual effects of standards, Tables 3-5 report results when one labor standard is introduced at a time.…”

“…As shown by Brown et al (1996) and Dehejia and Samy (2004), theoretically, a labor standard that uses some capital and labor (and is therefore an additional cost) may alter a country's comparative advantage depending on the factor intensity of the standard and factor endowments of the country (which in turn determine whether the country is an exporter or importer of the good affected by the standard). In a Heckscher-Ohlin framework, an increase in the labor force of a given labor-abundant country (due for example to a reduction in the minimum age for employment -which can be conceived as a decrease in labor standards), will increase production of the goods that use labor intensively, improving the country's comparative advantage in that good.…”

“…They obtain very weak evidence that low standards help boost export competitiveness. 7 Rodriguez and Samy (2003) and Dehejia and Samy (2004) In another study, Krueger (2000) has examined the impact that the EU will have on the labor compact, 8 focusing in particular on the race to the bottom hypothesis that countries will have to lower their standards to maintain a competitive advantage in trade.Overall, his results indicate that even though integration will cause some downward pressure on labor market protections (that is, looser regulation), this pressure will be modest, and European nations will continue to maintain distinct labor practices as long as they are willing to bear the costs of these practices. Krueger gives several reasons why this should not come as a surprise.…”

“…They obtain very weak evidence that low standards help boost export competitiveness. 7 Rodriguez and Samy (2003) and Dehejia and Samy (2004) In another study, Krueger (2000) has examined the impact that the EU will have on the labor compact, 8 focusing in particular on the race to the bottom hypothesis that countries will have to lower their standards to maintain a competitive advantage in trade.…”

Regional Trade Agreements with Labor Clauses: Effects on Labor Standards and Trade

“…35 Busse employs the following labor-standard proxies: female labor force activity rate, the percent of children who are not working, a scale index of forced labor (by the ILO), a scale index of union freedom and rights (by the OECD), and the number of the ILO core conventions ratified. He also includes a similar set of factor-endowment measures to those employed by Dehejia & Samy (2004) as the explanatory variables. 36 The score is computed as the sum of a scale indicator, ranging between 0 and 2, for each of the following five labor regulations sourced from the 1994 OECD Employment Outlook: working time, fixed-term contract, employment protection, minimum wages, and employees' representation rights.…”