Foreign Direct Investment, Global Value Chains, and Labor Rights: No Race-to-The-Bottom?
Abstract
Does globalization weaken worker’s rights? Data is inconclusive; what evidence there is suggests a developing country tends to strengthen labor rights when its access to global value chains (GVC’s) increases. We present a stylized model of multinational firms choosing host locations for global value chains, in which each host-country government chooses the strength of collective-bargaining rights for its workers. Each government trades the direct benefit of stronger bargaining rights against the effect of chasing multinationals away to rival countries. We find that an increase in globalization in the sense of lower transaction costs has no effect on equilibrium workers’ rights, but lower costs for one country tend to strengthen that country’s labor rights, and adding more countries to the global economy tends, in the limit, to weaken them.