Social dumping and relocation: is there a case for imposing a social clause?
AbstractPublic opinion in Europe seems worried about the effect of lower-wage country competition. In both newspaper articles and in policy debates, the term âsocial dumpingâ is becoming more and more popular. In many countries, trade unions worried by the effect of what they call âunfair competitionâ, propose the adoption of a âsocial clauseâ protecting domestic markets from commodities produced in countries were minimal labour conditions are not met. We analyse the effects of such a policy in the framework of a vertically differentiated Bertrand duopoly. In particular, we study the effects of such a policy on the relocation decisions of the firms and perform a welfare analysis. The welfare analysis takes explicitly into account the unemployment situation in the domestic country by accounting for the workersâ welfare losses due to job reductions following the relocation of firms. We characterize the optimal social clause policy both under domestic welfare maximization and from an efficiency point of view. We show that, on domestic welfare grounds, the case for a social clause policy is weaker the higher the domestic wage and the lower the foreign wage.
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Bibliographic InfoArticle provided by Elsevier in its journal Regional Science and Urban Economics.
Volume (Year): 31 (2001)
Issue (Month): 6 (November)
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Web page: http://www.elsevier.com/locate/regec
Other versions of this item:
- Cordella, Tito & Grilo, Isabel, 1998. "'Social Dumping' and Relocation: Is there a Case for Imposing a Social Clause?," CEPR Discussion Papers 1931, C.E.P.R. Discussion Papers.
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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