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Can RTA labor provisions prevent the deterioration of domestic labor standards? : the cases of statutory minimum wages and employment protection regulations

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  • Kamata, Isao

Abstract

This study investigates whether labor clauses in regional trade agreements (RTAs) are effective to maintain or improve the domestic labor standards in the signatory countries. The effects of RTA labor clauses on two measures of labor standards, statutory minimum wages and the strictness of employment protection, are empirically analyzed using a unique dataset that classifies the population of effective RTAs into those with and without labor clauses, together with multi-year data on minimum wages and the indicator of employment-protection strictness for a wide variety of countries. The result shows that having labor-clause-free RTAs with more or larger trading partners are associated with lower statutory minimum wages although this negative association is not found for labor-clauseinclusive RTAs. The separate estimation for countries in different income groups further demonstrates that this result is chiefly driven by middle-income countries that sign RTAs with high-income partners, implying that signing RTAs with more or larger high-income trading partners would create to the government of a middleincome country, which has a comparative advantage over the high-income partners in labor-intensive sectors, a downward policy pressure on statutory minimum wages whereas labor clauses could alleviate such a negative policy effect of RTAs on minimum wages. This finding is also contrasted with the case of actual wages for which no evidence is found for the impact of RTAs with or without labor clauses to reaffirm that labor-clause-free RTAs could create downward policy pressure on statutory minimum wages but RTAs might not bring market pressure on actual wages regardless of whether or not the RTAs include labor clauses. Finally, unlike this case of statutory minimum wages, the empirical analysis finds no clear evidence for the potential impacts of RTAs either with or without labor clauses on the strictness of employment protection in the signatory countries.

Suggested Citation

  • Kamata, Isao, 2018. "Can RTA labor provisions prevent the deterioration of domestic labor standards? : the cases of statutory minimum wages and employment protection regulations," IDE Discussion Papers 716, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper716
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    References listed on IDEAS

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    1. Drusilla K Brown & Alan V Deardorff & Robert M Stern, 2013. "Labor Standards and Human Rights: Implications for International Trade and Investment," World Scientific Book Chapters, in: Zdenek Drabek & Petros Mavroidis (ed.), Regulation of Foreign Investment Challenges to International Harmonization, chapter 5, pages 153-195, World Scientific Publishing Co. Pte. Ltd..
    2. KAMATA Isao, 2014. "Regional Trade Agreements with Labor Clauses: Effects on labor standards and trade," Discussion papers 14012, Research Institute of Economy, Trade and Industry (RIETI).
    3. Davies, Ronald B. & Vadlamannati, Krishna Chaitanya, 2013. "A race to the bottom in labor standards? An empirical investigation," Journal of Development Economics, Elsevier, vol. 103(C), pages 1-14.
    4. Isao Kamata, 2015. "Labor Clauses in Regional Trade Agreements and Effects on Labor Conditions: An Empirical Analysis," Discussion papers e-14-019, Graduate School of Economics Project Center, Kyoto University.
    5. David KUCERA, 2002. "Core labour standards and foreign direct investment," International Labour Review, International Labour Organization, vol. 141(1-2), pages 31-69, March.
    6. Olney, William W., 2013. "A race to the bottom? Employment protection and foreign direct investment," Journal of International Economics, Elsevier, vol. 91(2), pages 191-203.
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    Cited by:

    1. Céline Carrère & Marcelo Olarreaga & Damian Raess, 2022. "Labor clauses in trade agreements: Hidden protectionism?," The Review of International Organizations, Springer, vol. 17(3), pages 453-483, July.
    2. Isao KAMATA, 2021. "Labor Market Flexibility and Inward Foreign Direct Investment:Incentive or Outcome?," Discussion papers e-20-007, Graduate School of Economics , Kyoto University.
    3. KAMATA Isao, 2020. "Labor Market Flexibility and Inward Foreign Direct Investment," Discussion papers 20057, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    International trade; Regional trade agreements; Labor clauses; Minimum wages; Employment protection;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy

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