Trade and labour standards: Will there be a race to the bottom?

摘要

We investigate whether strategic competition among developing countries for export market shares will lead to a "race-to-the-bottom" (RTB) in labour standards. We consider an environment that is most conducive to an RTB, specifically in a model of strategic trade in which governments have incentives to lower the costs of their domestic firms. Our analysis shows that strategic trade considerations do not lead to an RTB. To the contrary, equilibrium labour standards involve higher levels of labour compensation than those in the absence of government intervention. Binding global trade rules that restrict export subsidies would move the labour standards closer to their efficient level.