Economic Competition, Policy Interdependence, and Labour Rights

ABSTRACT

Extant scholarship treats national policies concerning labour rights as a function of economic factors and yet neglects influences of policies among economically competing states. Relying on the policy interdependence theory, this study argues that labour rights policy in a state is dependent on its economic competitors’ labour policy decisions. It specifically maintains that the intensifying competition for foreign direct investment and exports as well as against imports channels negative externalities of deteriorating labour protection in competing states which drives expansive downward policy mimicking and leads to a global decline in labour rights – a race to the bottom. Utilising spatial econometric technique to analyse a new data on labour rights for the period 1994–2009, it finds that labour rights practices are interdependent among economic competitors and experience global deteriorations; whereas labour rights laws remain largely independent due to high policy and reputational costs of lowering them and show more fluctuations.

KEYWORDS:

• Competition
• labour rights
• policy interdependence
• globalisation
• spatial model

Acknowledgements

The author would like to thank David Cingranelli for his valuable suggestions. The author would also like to thank Benjamin Fordham, Mikhail Filippov and Ekrem Karakoc for their helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Zhiyuan Wang is an assistant professor in the Department of Political Science at Texas A&M University-Commerce. He earned his PhD in political science from Binghamton University, SUNY. His research interests are international and comparative political economy, human rights (including labour rights), international law and organisations, and law and politics in China. His work is forthcoming or has appeared in the Political Research Quarterly, Social Science Quarterly, the Journal of Human Rights China: An International Journal, the Review of Law and Economics, and Human Rights Review.

Notes

1 Notably, policy interdependence is only one form of policy diffusion (Franzese and Hays 2008).

2 The concept of policy externalities is an improvement on early spatial externalities (see Anselin (2003).

3 The IPE literature often conflates exports and imports into one category (e.g. Li and Reuveny 2003, Mosley 2011). However, as I will show, the underlying competition logic could be different for exports than it is for imports.

4 However, some other scholars argue that respect for labour rights fosters a transparent and stable investment environment and signals a pool of high-quality labour, which should facilitate investment (Aidt and Tzannaos 2002, Blanton and Blanton 2007, Moran 2011, Mosley 2011). There is also empirical evidence revealing no such relationship exists between labour price and investment (Li and Resnick 2003).

5 This is not saying that firms do not take part in the implementation of policies. Firm-level decisions do affect the labour rights practices. However, firms do not respect labour rights more due to the enforcement mechanism that is intended by the state to be weak and ineffective. Studies show that government enforcement increases compliance in the society (Ronconi 2010).

6 Greenhill et al. (2009) and Mosley (2011) derive scores of law and practice from the original data, although such distinction is not in the coding scheme (Mosley and Uno 2007). Moreover, surprisingly, both law and practice used in Greenhill et al.’s paper are negatively correlated with the original labour rights scores made by Mosely and Uno.

7 Using the same estimation model, I also analyse Mosley and Uno’s data. The results are very similar to those using Barry et al.’s data. Due to space limitations, the result tables appear in an online appendix.

8 For technical details, please see Sailer (1978).

9 Mosley and Uno’s data on overall labour rights exhibit the same pattern. Please refer to the online appendix for details.

10 For more details, please see Davies and Vadlamannati (2013) and Olney (2013).

11 It is due to the adoption of the maximum likelihood model that state-fixed effects are not considered, since doing so would bias the coefficients (Katz 2001).