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

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 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 "σ-convergence" in labor standards. Furthermore, and on a more pragmatic note, the EU has been in existence for enough years: the availability of reliable data, both cross-section and time series, makes empirical analysis possible. Regarding labor standards themselves, the EU has traditionally tried to ensure a "decent" working environment throughout member countries, by setting some common minimum rules on working conditions, and promoting a safe and healthy work environment, but leaving some room for preservation of policy independence and diversity (Gitterman 2003). Terms of use: Documents in EconStor mayIn this paper, we follow the OECD (1996) and define labor standards as norms, rules and conventions that govern working conditions and industrial relations. Such a definition captures all the institutional elements of labor markets such as minimum wages, occupational health and safety standards, number of hours worked, rates of occupational injuries, and unionization rates. 2 One would presumably expect labor standards to be a driven by both a country's level of development and its respect for international conventions defined by the ILO that it has ratified. Ultimately, the choice of a particular standard is a domestic policy choice, whi...

Trade and Labor Standards in the European Union: A Gravity Model Approach

“…When intra-EU exports are considered, the evidence for the conventional wisdom is rather weak and the authors even find evidence going in the other direction, which they explain through productivity effects. Dehejia and Samy (2008) also investigate whether there has been a race to the bottom of standards over that time period and again their results are not conclusive: some standards have converged while others have diverged.…”

“…The fact that only 1992 data is considered carries the risk that the results of the analysis could be based on an unrepresentative year. Dehejia and Samy (2008) in a recent paper have examined the relationship between labor standards and trade performance for EU-15 countries based on a Heckscher-Ohlin framework and using panel data for the period 1980-2001. They find some evidence for the conventional wisdom when exports of the EU to the rest of the world are considered but labor standards exert less of an influence than the traditional determinants of comparative advantage.…”

“…SeeGitterman (2003) andDehejia and Samy (2008) for a brief history of labor standards in the European Union,…”

International trade and labor standards: a proposal for linkage

“…They find, based on their own work and that of others that, "there is no clear-cut link, either in theory or in practice, between the level of stringency of labor standards and a country's comparative advantage, whether it is measured by its terms of trade (in the theoretical model) or the extent to which it affects export performance (in the empirical work)."' 189 Whereas Mah found that ratification of ILO conventions was associated with inferior export performance, "OECD found no evidence that countries with low labour standards achieved a better export performance than countries with high labour standards."' 190 Mah did not control for "natural determinants of comparative advantage," thereby justifying some skepticism.…”

Three essays in international economics

“…While the concern about the RTB in labour standards has primarily focused on North-South trade, this is not to discount the potential effects of standards on trade among Following Dehejia and Samy (2008 examines the impact of work injuries and the rate of strikes or lock-outs on export performance. Unique to this analysis, however, is th a t Bonnal pursues a dynamic panel approach more thor oughly.…”