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

  • Vivek Dehejia
  • Yiagadeesen Samy

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 reducelabor 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 unlikeprevious 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 largelybased on factor endowments. We also find mixed evidence for “ó-convergence” in laborstandards.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1746.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1746
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  1. Alan Krueger, 1999. "From Bismarck to Maastricht: The March to European Union and the Labor Compact," Working Papers 803, Princeton University, Department of Economics, Industrial Relations Section..
  2. Xavier Sala-i-Martin, 1994. "Regional cohesion: Evidence and theories of regional growth and convergence," Economics Working Papers 104, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Dehejia, Vivek H., 1998. "Can standards immiserize?," Economics Letters, Elsevier, vol. 59(3), pages 361-366, June.
  4. 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.
  5. Cees van Beers, 1998. "Labour Standards and Trade Flows of OECD Countries," The World Economy, Wiley Blackwell, vol. 21(1), pages 57-73, 01.
  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.
  7. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
  8. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
  9. 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.
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