Globalization, trade unions and labour standards in the North

Employment Working Paper No. 119

Trade unions have always played an important role in the determination of labour standards. This activity can be argued to increase output and welfare of a country. This paper presents a theoretical framework representing a world consisting of the North and the South where labour standards in the North are set by trade unions. There are no unions in the South implying suboptimal work standards. Global integration of these countries can imply a reduction in work standards in the North. Moreover, when trade unions are established in the South, the North, including northern unions, tends to lose out. Quantitatively, these effects are small and overcompensated for by gains in the South. The existing empirical literature tends to support our findings.