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

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  • Vivek Dehejia
  • Yiagadeesen Samy

Abstract

This study is motivated by frequent calls to harmonize labor standards across countries, which result from the fear that economic integration (and the accompanying liberalization of trade flows) will lead to an erosion of working conditions, as countries deliberately try to reduce labor standards in order to maintain competitiveness. We examine the linkages between labor standards and economic integration in the European Union (EU) and, in particular, investigate the following questions. First, whether the conventional wisdom that labor standards are important determinants of trade performance holds, and second whether there has been a “race to the bottom” of standards across countries with deeper integration. We follow a neoclassical factor-proportions framework to conduct our empirical investigation, and unlike previous studies, which rely mostly on cross-sectional data, we use a fully-fledged panel data set to explore the relationship between labor standards and export performance. Our estimates based on data for the period 1980-2001 for EU-15 countries provides mixed evidence regarding the conventional wisdom, and we find that trade performance is largely based on factor endowments. We also find mixed evidence for “ó-convergence” in labor standards.

Suggested Citation

  • Vivek Dehejia & Yiagadeesen Samy, 2006. "Labor Standards and Economic Integration in the European Union: An Empirical Analysis," CESifo Working Paper Series 1746, CESifo.
    • Handle: RePEc:ces:ceswps:_1746
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    References listed on IDEAS

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    1. Andrea Bassanini & Stefano Scarpetta, 2001. "Does Human Capital Matter for Growth in OECD Countries?: Evidence from Pooled Mean-Group Estimates," OECD Economics Department Working Papers 282, OECD Publishing.
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    7. Gabriel Rodriguez & Yiagadeesen Samy, 2003. "Analysing the effects of labour standards on US export performance. A time series approach with structural change," Applied Economics, Taylor & Francis Journals, vol. 35(9), pages 1043-1051.
    8. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(1), pages 98-116.
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    Cited by:

    1. Haberli, Christian. & Jansen, Marion. & Monteiro, José-Antonio., 2012. "Regional trade agreements and domestic labour market regulation," ILO Working Papers 994700163402676, International Labour Organization.
    2. Heijdra, Ben J. & Ligthart, Jenny E., 2007. "Fiscal policy, monopolistic competition, and finite lives," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 325-359, January.
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    4. Hecock, R. Douglas & Jepsen, Eric M., 2013. "Should Countries Engage in a Race to the Bottom? The Effect of Social Spending on FDI," World Development, Elsevier, vol. 44(C), pages 156-164.
    5. Hall Joshua C. & Lawson Robert A. & Wogsland Rachael, 2011. "The European Union and Economic Freedom," Global Economy Journal, De Gruyter, vol. 11(3), pages 1-16, September.

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    More about this item

    Keywords

    economic integration; labor standards; comparative advantage; ó-convergence;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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