Direct Democracy and Labour Standards of a Small Open Economy

Uk Hwang

Research Fellow, Korea Environment Institute, 613-2, Bulkwang-dong, Eunpyung-gu, Seoul 122-706, Korea, Tel: +82-2-380-7685 uh202@kei.re.kr.

JEL Classfication: F16, J80, D72

Abstract

This paper investigates the controversial relationship between labour standards and globalisation within a 2×2 Heckscher-Ohlin-Mayer political-economy trade model. We adopt the median voter model to characterise the labour standards chosen under majority voting. We found that labour standards are more lax in economies with large income inequalities. More importantly, we also show that globalisation may or may not promote stricter labour standards depending on the factor abundance of each country. Thus, a race to the bottom is not an necessary implication of globalisation.

Keywords:

Median voter theorem, Endogenous labour standard, Globalisation

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