Rethinking Global Labor Standards: Controversies, Constraints, and Possibilities

Most people worldwide rely on their own labor to generate income for themselves and their families. Employment is central to our economic survival. However, simply having access to employment is not enough. The quality of employment varies enormously, both within and across countries, and there is no guarantee that paid employment will generate sufficient income to meet basic needs, provide adequate savings for unforeseen emergencies, and sustain the material and emotional well-being of working people. Labor standards have been used to set basic benchmarks of decency: protecting the rights of workers and defining the conditions under which labor can be exchanged. However, as developing countries continue to become increasingly integrated into the world economy, the relevance of labor standards for many of the world's low-income workers has been called into question—do labor standards actually help vulnerable workers and, if not, might they do more harm than good?

This paper argues that labor standards—as they have been traditionally conceived and implemented—may be increasingly limited in their ability to protect working people. Specifically, old models—in which national governments regulate formal, wage employment for their citizens—are insufficient and may be biased against vulnerable groups, including women working in informal employment. This is not to say that labor standards, broadly defined, are irrelevant. Indeed, social protections for workers may be more relevant today than in the past in order to check the imbalances introduced by global market forces, which often work to the disadvantage of labor. However, the thinking around global labor standards needs to be transformed if interventions to improve the quality of employment are to stand a chance.

Labor Standards and Employment: The Debate

Are better labor standards good for working people? This controversial question lies at the heart of much heated debate around global labor standards. At first, the answer may appear trivial—regulatory interventions which improve working conditions should also improve the welfare of working people. Moreover, if labor standards are appropriately designed to target the most vulnerable segments of the labor market, including women workers, labor standards should also reduce poverty and mitigate inequalities. However, the issue is more complex and hinges on the possibility of unintended consequences. If labor standards reduce the number of available employment opportunities, then the welfare impacts become more ambiguous. In developing countries with weak social safety nets, a bad job may be better than no job.¹

Opponents of the idea of global labor standards often draw on international trade theory to make their point. The argument goes as follows. Developing countries have an abundance of low-wage labor, but a shortage of other factors of production, such as capital equipment or a technologically savvy workforce. Their competitive advantage therefore lies in low-wage production. In this context, global standards compromise the competitive position of developing countries with an abundance of low-skill, low-wage labor.² Moreover, such protections shield workers in more affluent economies from global competition. The end result will be more protected jobs in rich nations and fewer economic opportunities in poor countries.

A similar set of arguments against labor protections are based on the premise that labor markets are generally efficient and maximize total welfare within an economy. In an ideal world with perfectly functioning markets, global labor standards become inefficient regulatory distortions in which the gains in terms of better jobs are more than off-set by lower levels of employment.³ However, this efficiency argument depends on the existence of a seamless link between price adjustments and the allocation of productive resources in which unemployment only occurs when regulators tamper with the market mechanism. The introduction of market imperfections, externalities, or transactions costs fundamentally changes this picture.

Although the assumptions and theoretical details of these economic models are open to question, the more general point is relevant. As production and supply networks become increasingly integrated and competitive pressures intensify, employment will generally become more sensitive to changes in the cost of production.⁴ Meaningful improvements in working conditions—in terms of better wages, safer workplaces, and basic social protections—generally translate into higher costs. The risk is...