Paved with good intentions: Social dumping and raising labour standards in developing countries

Abstract

This paper uses a two-sector wage differential model to analyse the effects of an increase in labour costs in the export sector of a developing country. The increase is assumed to be a response to humanitarian or protectionist-motivated pressure from developed countries to reduce "?social dumping"?. Some labour would shift into the residual sector of the economy, hence lower wages there, and increase wage inequality. The average wage may rise or fall, depending on elasticity conditions. Monopsony in the labour market, mobility of multinationals in response to lower profits and terms of trade effects are allowed for.