Chapter 10 – wages and

labour standard at stake?

 Anti-globalizers believes trade with poor
countries with low wages will drive down
the real wages and labour standard will be
lowered in order to ensure competitiveness.
A phenomenal termed “a race to the
bottom”
 Globalization and worker’s
wage
 It is assumed that the lower prices of labour intensive goods, as a
result of international trades will lower the real wages of the labour.
For example, inclusion of Mexico in NAFTA raised concern for US
labour unions and Democrats.
 However, evidence from economists such as Paul Krugman and
Robert Lawrence showed that the degree of wages depression is small
or even negligible.
 Wages depression are caused by the price depression of the labour
intensive goods as a result of increasing supplies from the poor
countries.
 However, wages in US stagnant when price of labour intensive goods
rose in the 80’s and in the 70’s the wages rose when the prices fell.
 Globalization and worker’s
wage
 Trade with poor countries raised concern for its
possibility that market will be flooded with cheap
goods from these poor countries, in actual fact it
does not happen-ladders of comparative
advantage.
 Recent empirical study by Robert Feenstra and
Gordon Hanson concluded the imports of labour
intensive goods from poor countries actually
raised the real wages of workers
 Globalization and labor
standard
 Possibilityof a corroded labor standards
 Threats from the employers
– The prospect of domestic employers will successfully
manage to influence government to lower labour
standard to cope with the challenge from producers in
poor countries is widely feared.
 They are unlikely to succeed, as regulations have
hardly relaxed(lead paint regulation in
California)
 Analysis show that the better the workers’ rights
are protected and the higher the unionization of
worker,the higher the investment inflows.
 Globalization and labor
standards
 No evidence shows that lower
environmental standards in an area became
the attraction of multinational investment.
 Multinationals unlikely to jeopardize their
reputation to take advantage of lower
standards especially in the presence of
eagle-eyed media.
 The presence of Pro-regulatory groups,
environmentalist and unions.
 Globalization and labor
standards
 Worried about international competition
 VER (Voluntary Export Restriction)
 Protect Export Competitiveness
 Other reasons for barrier to lowering of
labour standard-moral issue(for example-
the exploitation of child labour)