International Labour Standards and North–South Competition


  • The author wishes to thank Professors Jagdish Bhagwati, Jonathan Eaton, Koichi Hamada, Elhanan Helpman and Anthony Venables for their encouragement and insightful suggestions on this project. I am especially grateful to an anonymous referee for detailed comments which made the paper much more readable to a wider audience. For their useful suggestions I also thank Masahiro Endoh, Hideki Funatsu, Taiji Furusawa, Makoto Ikema, Jota Ishikawa, Jiandong Ju, Jim Markusen, Kaz Miyagiwa, Hodaka Morita, Ray Riezman, Chisato Shibayama, Kenji Yamamoto and other seminar participants at ACE conference 2007 (City University of Hong Kong), Hitotsubashi University, Kobe University, Otaru University of Commerce, University of Otago and the Midwest International Meetings 2007 (University of Minnesota). The usual disclaimer applies.


This paper models the economic aspects of labour standards (LS) in an oligopolistic framework of three countries, incorporating labour–management negotiations in the North and monopsonic labour markets in Southern countries. Contrary to the literature, a higher LS not only incurs a higher cost, but also benefits workers and induces them to work harder. Because of these links, Northern intervention, via import taxes or minimum LS regulation, may often have perverse effects on Southern countries. Specifically, imposing an unconditional tariff against a certain Southern country to force up its LS does not work. Further, the unconditional tariff would shift production to another country. These shed light on why developing countries oppose including LS in WTO negotiations. However, a LS-contingent tariff, or a minimum LS regulation is effective in raising LS in Southern countries, but the utility of the Northern labour union may fall. Incorporating altruism and humanitarian concerns mitigates the effects of unconditional tariff policies. Finally, as the empirical evidence shows, we demonstrate that multinational enterprises choose to locate in those developing countries whose LS is relatively higher.