Do Economic Problems at Home Undermine Worker Safety Abroad?: A Panel Study, 1980–2009

Abstract

Do economic downturns in the Global North undermine worker safety in the Global South?Literature suggests that bilateral trade linkages lead to the diffusion of "good" labor standards from importing countries of the Global North to exporting countries of the Global South. The crucial mechanism is the ability and willingness of importing firms to deploy their market leverage and ask for improved labor standards from their overseas suppliers. Yet, cost-cutting pressures emanating from economic downturns might lead the same importing firms to give lower priority to worker safety in their overseas supply chains. When importing firms demand price reductions, overseas suppliers might respond by reducing wages, ignoring safety regulations, and working their labor force for longer hours. The observable implication is that worker safety in the Global South may deteriorate during economic downturns in their export markets located in the Global North. We evaluate our hypothesis using a panel of 83 developing countries for the period, 1980-2009, and find that economic downturns in developed country markets are associated with significant increases in non-fatal occupational injury rates in developing countries. The injury-increasing effect is more pronounced in developing countries with weak workers' rights protection. 2. Economic downturns compel firms to cut costs.3. Importers in developed countries seek cost cuts abroad.4. To remain competitive, developing country suppliers downgrade worker safety.5. Domestic labor laws and unions can shield the safety of workers.2

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