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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 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 Group Munich.
  • Handle: RePEc:ces:ceswps:_1746

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    References listed on IDEAS

    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.
    2. Sala-i-Martin, Xavier X., 1996. "Regional cohesion: Evidence and theories of regional growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1325-1352, June.
    3. Dehejia, Vivek H., 1998. "Can standards immiserize?," Economics Letters, Elsevier, vol. 59(3), pages 361-366, June.
    4. 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.
    5. Cees van Beers, 1998. "Labour Standards and Trade Flows of OECD Countries," The World Economy, Wiley Blackwell, vol. 21(1), pages 57-73, January.
    6. 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.
    7. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 98-116.
    8. Alan B. 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..
    9. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
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    Cited by:

    1. repec:ilo:ilowps:470016 is not listed on IDEAS
    2. 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.
    3. Häberli, Christian. & Jansen, Marion. & Monteiro, José-Antonio., 2012. "Regional trade agreements and domestic labour market regulation," ILO Working Papers 994700163402676, International Labour Organization.
    4. 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.

    More about this item


    economic integration; labor standards; comparative advantage; ó-convergence;

    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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