Economic Growth and Labor Standards: A Dynamic Panel Data Approach

Abstract

I explore the relationship between economic growth and international labor standards in a panel of 121 countries from 1974 to 2004. A large literature has empirically tested the neoclassical growth model using cross-sectional or panel regressions. Here, I augment the growth model with labor standards. I use a dynamic panel data model to account for the endogeneity of the determinants of economic growth as well as including the role of labor standards in driving the economic performance of a country. The panel data methodology controls for specific country- and year-effects and accounts for possible endogeneity bias using instrumental variables estimation. I use two measures of labor standards: the rate of work injuries and the rate of strikes and lockouts. I find that higher labor standards are associated with better economic growth. For instance, the results suggest the absence of a positive association between the rate of work injuries and the level of per capita income, as well as the absence of a negative association between the rate of strikes and lockouts and the level of per capita income.