Core labour standards, Bilateral and Multilateral Trade

Abstract

Core labour standards defined by the ILO in 1998 are universal but applied very differently across countries. Compliance is much higher in high income countries. However, the causality between improved labour standards and economic growth remains a controversial issue. Export-led growth strategies might encourage developing countries to curb the process of standards improvement. In this way, they can raise the volume of their unskilled labour endowments (child and/or forced labour) in order to strengthen their comparative advantage over compliant countries. We use a gravity model to assess the trade impact of the level of compliance with core labour standards, distinguishing the effects on bilateral trade (geographical specialization) from the multilateral effects. We show that countries that meet the labour standards tend to trade more with each other, while non-compliant countries tend to trade more with compliant countries. These effects are identified mainly with respect to child labour and freedom of association. Countries that meet labour standards tend to be less open, but differently depending on the standards, with a non-linear relationship for some of them. Less compliant countries may simultaneously step up their trade and labour standards. For median countries, mainly the emerging countries, the level of compliance with labour standards is “optimal”.