This paper studies the behavior of firms towards weak labor rights in developing countries (South). A less than perfectly elastic labor supply in the South gives firms oligopsonistic power tempting them to strategically reduce output to cut wages. In an open economy, competitors operating in perfectly competitive labor markets meanwhile enjoy less aggressive competitors and raise output. Finally, competition effect reduces the ex-post output of a relocating firm. These effects reduce relative profitability of the South casting doubts on traditional beliefs that multinationals are attracted to regions with lower wages. Adopting a minimum wage unambiguously enhances Southern competitiveness and welfare.
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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number
2005.17.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Drusilla Brown & Alan Deardorff & Robert Stern, 1998.
"Trade and Labor Standards,"
Open Economies Review,
Springer, vol. 9(2), pages 171-194, April.
[Downloadable!] (restricted)
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Brown, K.D. & Deardorff, A.V. & Stern, R.M., 1997.
"Trade and Labor Standards,"
Working Papers
394, Research Seminar in International Economics, University of Michigan.
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