An empirical evaluation of the economic determinants and impacts of labor standards

This dissertation conducts an empirical evaluation of the economic determinants and the economic impact of labor standards. In doing so it hopes to move away from the narrow focus in the literature on the ambiguous relationship between trade and labor standards and view the latter as an evolving process that is embedded within a broader economic context. Viewing labor standards as an evolving process also helps to develop a better framework to understand the varied links between trade, particularly exports, and labor standards. In order identify the economic factors that influence the dynamic evolution of labor standards a two period optimization model is developed. The model incorporates the various short-run and long-run implications of adopting higher labor standards and derives an empirical equation with labor standards as the endogenous variable. The economic impact of labor standards is linked to improvements in labor productivity. In order to test this impact a stochastic production frontier approach is used. The empirical analysis is conducted with the help of a labor standards index. The cross-country times series index has been specifically constructed to overcome some of the shortcomings of previous measures. The significant conclusions from this research are that the influences on labor standards differ by levels of economic development. For countries above a threshold of development, income and factors like exports that have a potential positive impact on income, have a positive impact on labor standards in the long run. However for countries with very low levels of development do not experience this positive income impact on labor standards. Investments in education are the only positive influence on standards across all levels of development. Therefore raising standards globally cannot be achieved through a simple legislative process alone. Substantial and country specific investments in human capital are required. The results also indicate that in the short run exports tend to diminish the importance of labor productivity gains from higher labor standards.