Abstract
This paper investigates the impact of labour provisions in Free Trade Agreements (FTAs) on labour market conditions in the ratifying countries. Using panel data for up to 96 countries and a time-span from 1995 to 2008, matching techniques and a difference-in-differences approach are applied to identify the effect of FTAs on labour conditions, distinguishing between those with and without labour provisions. The results show that FTAs partially improve labour conditions in the participating countries, and that there are differences in these outcomes between agreements with specific labour provisions and those without. Empirical analysis reveals that labour provisions might be a suitable instrument to ensure labour standards, but also that a ‘global race to the bottom’ may not be prevented through these provisions per-se. The correct targeting of labour provisions is highly likely to play a crucial role in the context of avoiding a race to the bottom.
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Notes
Davies and Vadlamannati (2013) find that WTO membership tends to lower labour rights. They use a labour rights index that captures basic collective labour rights and is constructed using information on violations of labour rights related to freedom of association, union activities and rights to bargain and strike collectively.
Bilateral convergence means country A being converging to country B (and vice versa).
More precisely, RTAijt takes value 1 for a year in which an agreement was signed before July 1st. If an RTA was signed after that date, the variable is 0 for that year and becomes 1 in the following period (Kamata 2016).
Note that control variables are expressed in relative terms, indicating differences between two countries.
\( {Remote}_{ij}=0.5\ {D}_{ij}^{CC}\left\{\left[\ln \left({\sum}_{k=1,\kern0.5em k\ne j}^N{Dist}_{ik}/\left(N-1\right)\right)\right]+\left[\ln \left({\sum}_{k=1,\kern0.5em k\ne i}^N{Dist}_{kj}/\left(N-1\right)\right)\right]\right\} \)
where D is a common continent dummy. This variable is equal to zero if countries are on the same continent. Remote is then the log of the average value of the mean distances of countries i and j from all other countries.
A different method, the caliper matching, is applied as a robustness check.
Available upon request.
The results for the overall sample, representing the ‘Average Treatment Effect’ (ATE), are available upon request.
Recall that the variable “minimum wages” captures the rate of national minimum-to-median wages, in order to ensure comparability across countries, not the nominal absolute minimum wages.
Both datasets contain information on average notice periods and severance payments after 9 months, 4 and 20 years, which allowed comparing primordially the effects on ‘maximum severance payments’.
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Acknowledgements
I. Martinez-Zarzoso would like to thank the financial support received from Project ECO2017-83255-C3-3-P (AEI, FEDER, EU) and from project UJI-B2017-33.
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Martinez-Zarzoso, I., Kruse, H.W. Are Labour Provisions in Free Trade Agreements Improving Labour Conditions?. Open Econ Rev 30, 975–1003 (2019). https://doi.org/10.1007/s11079-019-09545-7
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DOI: https://doi.org/10.1007/s11079-019-09545-7