Trade Pact Sinks Over U.S. Push For Stringent Labor Standards

The U.S. and other trade negotiators working on the Indo-Pacific Economic Framework for Prosperity (IPEF) have been in San Francisco this week to wrap up see how much progress they can put on paper and then make a grand announcement. The answer, it turns out, is not much. U.S. calls for other countries to sign onto “strong and enforceable labor standards” have run into roadblocks. It’s not surprising—these other countries would have had 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.

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, consider calls to ban “gig workers” from key sectors of the economy. Specifically, many don’t want to let IPEF nations classify workers as “gig workers” rather than “employees” of major transportation, food service, retail, and other online firms. But 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 very workers that these IPEF provisions aim to help, such as women and minorities.

Gig workers are self-employed and do not strike against themselves, so unions tend to disfavor gig workers. But, according to the Bureau of Labor Statistics, the majority (79 percent) of independent contractors prefer their arrangements over traditional employment.

Pew reports that women and non-Whites have higher than average participation rates in the gig economy. Independent workers in Upwork’s “Freeland Forward” surveys cite dependent care obligations, personal circumstances, or a strong preference for job flexibility (over job stability) as the primary reasons.

As my colleague Liya Palagashvili has noted, gig economy jobs give workers the opportunity to supplement their income on their own schedule and that tends to disproportionately benefit women. It turns out 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.

A better approach, again as Palagashvili has noted, would be to promote portable benefits. Portable benefits, both in the U.S. and internationally, would “allow independent workers to maintain their nontraditional work arrangements and improve their access to flexible benefits.” Some states have adopted or are eyeing this innovative approach.

These are just a few reasons why micromanaging other countries’ labor laws is less productive than you might think. IPEF nations are expected to take up these issues again next year when the U.S. political situation might be different. But the economics will be the same.

Instead of the U.S. imposing strict, top-down labor standards on others, policymakers should let countries design their own labor laws and find ways towards a flexible, innovative and resilient workforce for all workers in IPEF nations.