US demands strict labor standards in trade agreement: Can it work?

US demands strict labor standards in trade agreement: Can it work?

US trade negotiators and other trade negotiators working on the Indo-Pacific Economic Framework for Prosperity (IPEF) are in San Francisco this week to see how much progress they can make on paper and then make a big announcement. But US calls for other countries to sign up to “strong, enforceable labor standards” face hurdles. It is not surprising that these other countries are forced to implement labor laws that may not be in their economic interest and may even push back their workers.

It is one thing to demand that states recognize basic human rights and prohibit forced labor. But it is not always a good idea to force less developed countries to apply the same labor laws as those in advanced industrial economies. Here are three examples.

First, consider banning child labor. Clearly, we should not encourage child labor – but should we discourage trade with countries that use it? Child labor is often found in poor countries where the alternative may be worse. When countries have more business opportunities that can boost economic growth and household income, child labor rates fall and school enrollment rates rise.

And that’s exactly what one study published by the National Bureau of Economic Research found: Regional trade agreements (RTAs) without child labor bans tend to reduce child labor and increase school enrollment rates. The opposite is also true: regional trade agreements that include bans on child labor tend to lead to higher rates of child labor and lower rates of school enrollment, especially for children between the ages of 14 and 17 years. That is, the labor standards had the opposite of their intended effect.

The economic intuition here is that higher incomes as a result of trade liberalization lead to a lower need for child labor. When parents have better job options and more income, they send their children to school. The bottom line for policymakers is fairly simple: remove trade barriers with developing world countries, but don’t meddle in the details of their labor laws. Any respectable parent would rather see their school-age children in a classroom than on a factory floor.

Second, the Commerce Pillar also includes language around inclusivity with respect to race, gender, and geography. But here, again, it is not so clear in practice. It has been found that removing barriers to trade and investment creates more opportunities for women than strict top-down rules. For example, Sandra Black and Elizabeth Brainerd find that trade benefits women by reducing the ability of companies to discriminate on the basis of sex. This is because discriminating against fully competent workers is costly, and since trade fosters competition, companies need to find the best workers regardless of their gender.

To raise labor standards, negotiators should look for types of trade liberalization that encourage foreign direct investment, which is another important factor here. Found Naomi Kodama and Beata S. Javorsek, and Yukiko Abe found that the proportion of females among workers, managers, directors, and board members was lower in Japanese domestic companies than in foreign subsidiaries that employed people within Japan. Foreign affiliates were more likely to offer flexible work arrangements, child care facilities, or child care subsidies.

Again, this happened without a top-down regulatory approach. Their foreign subsidiaries brought a different culture with them and over time it spread. Transferring corporate culture across international borders takes time, but it does happen. When this happens organically, these changes are more likely to be sustainable because they were driven by companies and workers themselves.

Third, some have criticized the International Staff Qualification Fund for allowing other countries to classify workers as “temporary workers” rather than “employees” at major transportation companies, food service, retail, and other online businesses. Independent workers are self-employed and do not strike against themselves, so unions tend not to favor independent workers. As my colleague Leah Balagashvili has noted, gig economy work that gives workers the opportunity to supplement their income according to their own schedule tends to disproportionately benefit women. Furthermore, it suggests that women in particular prefer jobs with greater autonomy and shorter work weeks, and women self-select into independent work jobs with greater time flexibility.

Pew reports that women, nonwhites, and younger workers have higher than average participation rates in the gig economy. Nearly 80 percent of gig workers prefer their arrangement to traditional employment. Workers cite dependent care obligations, personal circumstances, or a strong preference for job flexibility (over job stability) as main reasons.

A better approach, both in the United States and internationally, is to promote portable benefits. Portable benefits would “allow gig workers to maintain non-traditional work arrangements and improve their access to flexible benefits.” Rigid, top-down labor standards and rules about who can and cannot be classified as a worker in the gig economy limit worker flexibility and innovation, and can ultimately harm the workers this provision is intended to help.

These are just some of the reasons why micromanaging labor laws in other countries may be less productive than you might think. Encouraging free enterprise and competition is likely to reduce child labor and promote inclusiveness. Allowing the gig economy to flourish will foster a flexible, innovative and flexible workforce both here and abroad. Let other countries set their own labor laws independently of IPEF.
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(tags for translation)IPEF

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