Labor Standards: Where Do They Belong on the International Trade Agenda?
International labor standards have become the target of great focus by policymakers, international agencies, NGOs and other stakeholders. Tension on the standards of labor sometimes escalates into conflicts with the police, with labor activists agreeing on the importance of establishing standard accepted human rights concerning working conditions, and which would be respected universally. Low labor rates in developing countries may provide an incentive for the industrialized nations to lower their labor rates to maintain competitiveness in international trade. Nonetheless, opponents of universal labor standards argue that labor relations relate to the sovereignty of individual states, and should not feature in international trade negotiations, and that standardization of working standards to remain in the control of the ILO, and advanced through dialogue. The speech seeks to analyze merits of coordinating labor standards globally, instruments of compliance, underpinnings of universal labor standards, the effects of labor practices in developing countries in the industrialized countries, and whether labor standards negotiations are supposed to be introduced to the WTO or should remain under the ILO.
Labor Standards Defined: Rights, Outcomes, Efficiency
Labor market arose before the 14th century, to safeguard the interests of the elite. The English factory act represents the beginning of activism to mitigate the dire consequences of the industrial revolution on the poor. Traditionally, labor activism counters government intervention in the labor market. The ILO formed after WWI broadened the international labor agenda. The ILO Initially focused on eradicating forced labor and slavery. The ILO periodically promulgates conventions and commendations, which the member states may opt to endorse. For instance, Convention 1 established an 8-hour work day, while the fifth convention sets a minimum work age of 14 years.
Critique of the International Labor Standards
Critiques argue against the implementation of standards by the ILO without regard for cultural norms as well as the level of economic development. Empirical evidence shows a negative relationship between the optimal lengths of the work week, with the level of economic advancement of the nation. In Costa Rica, a manufacturing employee earned 1.54 per hour while working for 49.1 hours per week in 1999, while a manufacturing employee in the USA earned 13.91 per hour while working for 41.7 hours per week. Child labor is also dependent on the economic development level, with Krueger (1997), finding a stout negative correlation between child labor and the level of economic growth. Nations control child labor by laying out a set of minimum education levels, as well as a minimum age for employment.
Core labor Standards as Basic Human Rights
Responses to critics include a call for the implementation of “core standards” universally, given their independence from the national income, while also representing broadly held values and natural justice, while also bringing economic benefit. Cast in this light, the narrative of rights and values has emerged where many of the conventions encompassing a majority of the countries use this language. ILO conventions relating to labor standards are ratified by more than 100 countries, while more than 120 nations approve similar UN conventions. Further, the 1998 ILO Declaration on Fundamental Principles at Work is compulsory for all the 175 member states, which declares autonomy of association and organization, abolition of all types of forced labor, child labor, and discrimination in employment.
ILO Core Conventions
Suppression of forced labor is a major convention for the ILO, despite being ratified by 153- member states, it is un-ratified by the United States, indicating the wide disparity in the implementation of these standards. Further, the United States has not accepted any of the conventions relating to non-discrimination, free association, forced labor, and collective negotiating. Also, the conflict remains over what constitutes the elimination of labor discrimination.
Labor process Standards
Organizing principles are advanced in distinguishing labor standards related to process and outcomes. Outcome related labor is a lousy candidate for international standards since they are dependent on the outcome. In contrast, ILO conventions depend on the process deprived of specifying a particular result. A 1996 OECD report recognizes standards that exhibit almost universal acceptance, in addition to supporting the efficient functioning of labor markets. Essence is given to the humanitarian aspect of the convention, where for instance, the prohibition against forced labor is almost unanimous, without regard for the efficiency forgone. Bonded labor presents a loop-hole/ a grey area, where while the laborer might have entered into the bonded contract out of good-will, it is out of his control once he signs the contract. Legal bonded labor also limits the functioning of the capital market, with banks unwilling to advance credit to workers under a bonded contract. Further, discriminatory labor practices have been shown to lead to economic opportunities at times, where the government of Mozambique introduced laws which allowed the existing protected industries to continue operating as before, while the newly established export processing zone only accepted labor from women. Separating labor along gender lines thus proved advantageous. The results of collective bargaining are also undetermined, where rather than delivering benefits such as dispute resolution; the envisaged gains are negative if the union acts like a monopoly in a competitive market. Finally, the OECD regards child labor prohibition as a fundamental labor standard. Bonded child labor is the worst form of child labor exploitation, where the family depends on the income earned by the child, while also forcing children into the labor market due to parents earning inadequately. The most efficient way of avoiding child labor relates to shifting capital to labor, in a manner that changes the family’s child labor decisions. When the parents are earning sufficiently, the need to subject their children to the labor market is diminished.
Divergent Labor Standards, Trade, and Wages of Unskilled Workers in High-Income Countries
Humanitarian issues have been essential in the international labor standards debate. However, motivation comes in from the idea that trade conducted within developing countries that tend to have low wages, has heightened the levels of unemployment while also decreasing the overall growth in the wages of non-skilled employees in countries having a high-income level. Low labor cost in countries that have low-income level results from non-protection of labor rights. On the other hand, low wages are often associated with unfairness or illegitimacy.
Theory indicates that poor protection or non-protection of the rights of workers in a country can result in decreased wages in its trade associate. Citing Stolper Samuelson theory, international trade between two countries one with a high wage and the other with a low wage tends to decrease the returns to non-skilled labor in the country that has a high wage level. We try to find the extent to which the decrease in the unskilled labor returns in the US in past several decades is led by international trade with countries that have a low wage. We also try to find the extent to which such trade is as a result of low labor standards.
Trade Lowering the Return to Unskilled Labor in the United States
In the recent decades, there have been two candidates responsible for the increase in variation existing between trained workforce and unskilled labor in the US. Technical innovation linked to the advance in information and communication technologies, has the potential of increasing demand for skilled labor. However, trade objectors capitalize on the growth of international trade in countries that have a low wage. As such, this has resulted in a reduction in the demand for non-skilled workers in US.
Research evidence indicates that a crucial shift towards skill-biased technological revolution has taken place. The high demand for skilled employees has come in as a massive shift in some sectors in the economy but not based on specific labor-intensive sectors. Moreover, there exists unreliable evidence that the comparative price of labor intensives cuts down in the 1980s, contrary to what someone would expect when imported goods and services from low-income countries were destabilizing low-skilled labor.
Several economists still believe that international trade is associated with the recently experienced decreases in the wages of unskilled employees in the US. However, quantifying skill-biased technological innovation and trade as the reasons behind the increase in income inequality becomes complex by the fact that the two aspects are related. Technological innovations may increase both skilled labor demand and the imports from countries with low wages by simplifying the management of supply chains.
The debate on the distribution of income and trade has continued to attract heightened concerns. However, most of the evidence from research studies previously conducted support the fact that skill-based technological innovation is more significant when compared to trade. This explains the wage inequality in the US despite the fact that increased trade with low-income countries might have had an influence.
Do National Labor Standards Alter Exports, Competitiveness or Comparative Advantage?
In line with international labor standards, poorly protected trade freedom has been influential in determination of the comparative advantage and increase in the exports for low-income countries. Several research studies have deliberated some correlation prevalent in the existence and observation of the primary labor standards and trade performance measures. Some of these studies are:
Mah (1997) who analyzed the trade of 45 low-income nations and discovered that a nation’s GDP export share GDP is negatively linked with non-discrimination rights, freedom of association and also the right to organized collective bargaining.
Rodric (1996) provides a perfect example of gauging the marginal contribution of the major labor standards by comparing every country’s trade performance with an expected reference line to what such a country ought to be trading in considering its factor awards as well as other trade factors. Labor standards are measured in several ways: The total number of ratified ILO Conventions, Statutory hours worked, days of paid annual leave, unionization rate, an indicator of child labor and much more.
Brown (2000) ascertains that the correlation between labor standards in developing nations and the wage of unskilled employees in third world nations is not strong enough. Heightened international trade is far much a lesser determinant of income inequality in developed countries while on the other hand labor standards prove to be more of an inferior cause of wages in developing countries.
Competition Between Labor Standards and the Risk of a Race to the Bottom
Lack of harmonization may result to countries lowering their standards aimed at attracting more international investment or gaining a competitive edge over external exporters. This leads to the prisoner’s dilemma whereby each country has its incentive on adapting low labor standards. However, all countries could be beneficiaries of a coordinated option of high labor standards.
The Race to the Bottom
Economists who are much concerned about the prisoner’s dilemma in labor protection base their opinions on a “race to the bottom” whereby the government may be forced to alter labor protection legislation so that there is less interference with the local firms competing at the international level. This implies that global labor and trade standards are strongly related and as such ought to be treated concurrently within the WTO. Using harmonization of the labor standards, the political involvement in the labor standards law by local manufacturers will decrease and thus enhance the probability of passage. The United States pays the price for depending on global coordination to run the country’s local political process. In other words, it experiences adverse effects in terms of harmonized trade and specific high prices for imports and decreased prices for exports.
The Race to the Bottom Revisited
While considering the conflicting factors that affect international trade, the question lies in where the US can find a “race to the bottom” which is widely focused on improving behavior on the government part. Low labor standards may be important in the realization of a strategic advantage in global trade and also in accomplishing domestic objective when there are trade restriction tariffs. Labor standards such as tariffs influence the international terms of trade and play a significant role in importing firms and thus are policy substitutes. Upon removing tariffs and other trade restrictions by global trade negotiations, countries tend to surrender the policy tools used in turning the terms of trade to their gain and in protecting the producer who depend on imported goods. As such, some strategies applied in control of the resultant competition in domestic policies can only be significant if at all the WTO members are to benefit from trade freedom
Labor Standards in International Negotiations
The relationship between labor standards and trade restrictions brings in an issue of the manner in which labor standards may be encompassed in the WTO negotiations. Bagwell and Staiger (2000) come up with a way of drawing local policies into the WTO frame without necessarily direct negotiations on local policies. In the labor standards context, countries that may attempt to abuse their commitment to market access reached at in WTO negotiations may be essential in providing extra trade concessions to retain the original market access commitment agreed upon previously. Though international pressure may result in the passing of stricter labor laws, it is not clear as to which extent the freshly passed laws will alter the reality of labor market in developing countries. Therefore, the usual use of trade restrictions or trade sanctions threats made through the WTO does not seem to be a potential strategy for assisting employees in developing countries.
It is evident that there is an emerging trend in international market dialogs to increase trade coverage beyond outdated tariffs, subsidies, and quotas. Trade policies require to be agreed on concurrently if at all trade policy tools are to be optimally set. Labor standards have evidenced to be among the very most contentious of the domestic legislation in consideration for introduction into the WTO. Regardless of the trade relationship in labor market practices, the case for international labor standards facilitated by the World Trade Organization is definitely challenging. Diverse labor standards that are seen all over the world are a valid source of policy concern. However, it seems not likely that the goals of the policy are not to find a single set of international labor regulations and standards.