Trade and Labor Rights: A Panel Study

This paper tests the hypothesis that a “California Effect” serves to transmit superior labor standards from importing to exporting countries in a manner similar to the transmission of environmental standards. Our dependent variables measure the extent to which collective labor rights are violated, both in law and in practice. Our main independent variable, the bilateral trade context, measures the average respect for labor rights (in terms of either law or practice) among a given country’s (weighted) export destinations. The model is estimated using a panel of 90 developing countries over the period 1986-2002. We find that strong legal protections of collective labor rights in a country’s export destinations predict increases in the exporting country’s labor laws in subsequent years. This California effect finding is, however, weaker in terms of labor rights practices, highlighting the importance of distinguishing between formal legislation and actual implementation of labor rights.