U.S. Pushes For Stringent Labor Standards In Trade Pact: Can It Work?


The U.S. 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 put on paper and then make a grand announcement. But U.S. calls for other countries to sign onto “strong and enforceable labor standards” are running into roadblocks. It’s not surprising—these other countries would have to implement labor laws that may not be in their best economic interest and may even set their own workers back.

Asking countries to recognize basic human rights and ban forced labor is one thing. But it’s not always a good idea to force less-developed countries to have the same labor laws as those in advanced industrial economies. Here are three examples.

First, consider child labor bans. Obviously, we should not encourage child labor—but should we discourage trade with countries that use it? Child labor often exists in poor countries where the alternative may be even worse. When countries are offered more trade opportunities that can boost economic growth and household incomes, child employment declines and school enrollment increases.

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 decrease child employment and increase school enrollment. The opposite is also true: RTAs with child labor bans tend to lead to higher child labor rates and lower school enrollment, particularly for children 14-17 years old. That is, the labor standards had the opposite of their intended effect.

The economic intuition here is that rising incomes from trade liberalization lead to a drop in the need for child labor. When parents have better employment options and more income, they send their kids to school. The key takeaway for policymakers is fairly simple: remove trade barriers with the developing world, but don’t micromanage their labor laws. Any decent parent would prefer to see their school-age children in the classroom rather than on a factory floor.

Second, the trade pillar also includes language on inclusivity with respect to race, gender and geography. But here, again, it’s not so clear in practice. Removing barriers to trade and investment has been found to create more opportunities for women than strict top-down rules. For instance, Sandra E. Black and Elizabeth Brainerd found that trade benefits women by reducing the ability of firms to discriminate based on gender. This is because discrimination against perfectly capable workers is costly, and since trade boosts competition, firms need to find the best workers regardless of their gender.

To raise labor standards, negotiators should be looking for the types of trade liberalizations that encourage foreign direct investment, which is another important factor here. Naomi Kodama, Beata S. Javorcik and Yukiko Abe found that the proportion of females among workers, managers, directors, and board members was lower in Japanese domestic firms than it was in foreign affiliates employing people within Japan. Foreign affiliates were more likely to offer flexible working arrangements, childcare facilities or childcare subsidies.

Again, this happened without a top-down regulatory approach. The foreign affiliates brought a different culture with them and over time it caught on. It takes time to transplant a corporate culture across international borders, but it does happen. When it happens organically, those changes are more likely to be sustainable because they were driven by the firms and workers themselves.

Third, some have criticized IPEF for letting other countries classify workers as “gig workers” rather than “employees” of major transportation, food service, retail, and other online firms. Gig workers are self-employed and do not strike against themselves, so unions tend to disfavor gig workers. As my colleague Liya Palagashvili has noted, a gig economy job that gives workers the opportunity to supplement their income on their own schedule tends to disproportionately benefit women. Further, she notes that women in particular favor jobs with greater independence and shorter work weeks, and women self-select into independent work jobs that have greater temporal flexibility.

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

A better approach, both in the U.S. and internationally, is promoting portable benefits. Portable benefits would “allow independent workers to maintain their nontraditional work arrangements and improve their access to flexible benefits.” Strict, top-down labor standards and rules on who can and cannot be classified as a gig economy worker limit worker flexibility and innovation and could end up hurting the workers that this provision aims to help.

These are just a few reasons why micromanaging other countries’ labor laws is less productive than you might think. Encouraging free enterprise and competition is more likely to reduce child labor and promote inclusiveness. Allowing the gig economy to thrive will promote a flexible, innovative and resilient workforce both here and abroad. Let other countries set their own labor laws independently of IPEF.


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