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Trade and Labor Standards: A Review of the Theory and New Empirical Evidence

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Abstract

Despite its exclusion from the Doha agenda, the issue of trade and labor standards remains an intensely discussed subject among economists, policymakers, international agencies and nongovernmental organizations. In the past few years, both World Trade Organization (WTO) and International Labor Organization (ILO) member states have agreed that labor standards should not be used for protectionist purposes and that ignorance of, and deliberate violations of core labor standards to achieve comparative advantage, should be avoided. Member states of these two organizations have also made clear commitments to the adherence of core labor standards (as evidenced, for example, by the Singapore Ministerial Declaration of 1996 or the ILO Declaration on Fundamental Principles and Rights at Work of 1998). Since the WTO Singapore Ministerial declaration, the International Labor Organization (ILO) has been very active, and it recently published a voluminous report on the Social Dimensions of Globalization that reaffirms its promotional approach to labor standards, regularly reporting on commitments made by countries and supporting them through technical cooperation. During the fourth round of WTO talks in Doha in 2001, ministers stated that We reaffirm our declaration made at Singapore Ministerial Conference regarding internationally recognised core labour standards. We take note of work under way in the International Labour Organisation (ILO) on the social dimension of globalisation. Such statements do not rule out the possibility that the WTO will be called upon in the future to link social issues to trade agreements, which in our view, would open an unnecessary window (after environmental standards) for more non-trade issues such as human rights or social development. In fact, at the regional level, many preferential-trade agreements already include social clauses. In this paper, we review the theoretical and empirical literature examining the issue of trade and labor standards. In the first part of the paper, we survey the theoretical literature on trade and labor standards and extract the main analytical arguments from that literature. In the second part of the paper, we use new data on labor standards to examine 1) the conventional wisdom that countries with lower standards obtain (unfair) advantages in trade and 2) the relationship between opennessand labor standards. Our estimates are based on cross country regressions for developing countries and builds on the work done by Dehejia and Samy (2004), and Rodriguez and Samy (2003). While much of the literature tends to emphasize the labor cost effects of standards, non-labor cost effects in the form of stability and improvements in trade competitiveness cannot be automatically ruled out, and hence the relationship between labor standards and trade may not be as clear as one would hope. Our estimates provide rather weak evidence in favor of the conventional wisdom and we find no evidence that trade openness has led to a worsening of labor standards (represented by child labor).

Suggested Citation

  • Vivek H. Dehejia & Yiagadeesen Samy, 2007. "Trade and Labor Standards: A Review of the Theory and New Empirical Evidence," Carleton Economic Papers 07-12, Carleton University, Department of Economics.
  • Handle: RePEc:car:carecp:07-12
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    References listed on IDEAS

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    1. Busse, Matthias, 2002. "Do Labor Standards Affect Comparative Advantage in Developing Countries?," World Development, Elsevier, vol. 30(11), pages 1921-1932, November.
    2. Edmonds, Eric V. & Pavcnik, Nina, 2006. "International trade and child labor: Cross-country evidence," Journal of International Economics, Elsevier, vol. 68(1), pages 115-140, January.
    3. Gabriel Rodriguez & Yiagadeesen Samy, 2001. "Analyzing the Effects of Labor Standards on U.S. Export Performance: A Time Series Approach With Structural Change," Working Papers 0108E, University of Ottawa, Department of Economics.
    4. David Kucera & Ritash Sarna, 2006. "Trade Union Rights, Democracy, and Exports: a Gravity Model Approach," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 859-882, November.
    5. Martin, Will & Maskus, Keith E, 2001. "Core Labor Standards and Competitiveness: Implications for Global Trade Policy," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 317-328, May.
    6. Vivek Dehejia & Yiagadeesen Samy, 2004. "Trade and labour standards: theory and new empirical evidence," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(2), pages 179-198.
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    Citations

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    Cited by:

    1. Jean-Marie Cardebat & Alexandru Dimitrescu, 2011. "Social Responsibility of the countries and their international trade : A gravitational approach," Larefi Working Papers 1102, Larefi, Université Bordeaux 4.
    2. Christian E. Weller, 2011. "Could international labour rights play a role in US trade?," Cambridge Journal of Economics, Oxford University Press, vol. 35(1), pages 39-57.
    3. KAMATA Isao, 2014. "Regional Trade Agreements with Labor Clauses: Effects on labor standards and trade," Discussion papers 14012, Research Institute of Economy, Trade and Industry (RIETI).
    4. Kamata, Isao, 2016. "Labor clauses in regional trade agreements and effects on labor conditions : an empirical analysis," IDE Discussion Papers 609, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    5. Isao Kamatai, 2014. "Regional Trade Agreements with Labor Clauses: Effects on Labor Standards and Trade," Discussion papers e-13-007, Graduate School of Economics Project Center, Kyoto University.
    6. Isao Kamata, 2015. "Labor Clauses in Regional Trade Agreements and Effects on Labor Conditions: An Empirical Analysis," Discussion papers e-14-019, Graduate School of Economics Project Center, Kyoto University.

    More about this item

    Keywords

    international trade; labor standards; child labor;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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