Democracy,Policy Interdependence,and Labor Rights

Abstract

In this study, I examine how domestic regimes mitigate pressure from economically competing states to reduce the protection of labor rights. I argue that democratic states provide higher protection and are more resistant to this downward policy pressure for two main reasons. Directly, democracy empowers workers through freedom of association and enfranchisement. Indirectly, democracy offers better protection of property rights, which lessens the need to use labor rights as an economic incentive. I also argue that this resistance to the downward pressure is more pronounced in practice than in law. These expectations are supported through spatial analyses of a new global dataset on association and collective-bargaining rights for the period 1994–2012. The results remain robust to alternative measures of labor rights, different model specifications, and various econometric estimators.

Keywords

democracy policy interdependence labor rights spatial econometrics globalization

Introduction

Weakening labor rights can serve as a policy tool to increase national economic competitiveness. In an era of intensifying globalization, which is characterized by states’ deep involvement in fiercer global economic competition, exploiting this tool has produced considerable negative externalities and, therefore, created strong policy interdependence among economically competing states and led to the global deterioration of labor rights—a race to the bottom (Davies and Vadlamannati 2013; Mosley 2011; cf. Greenhill, Mosley, and Prakash 2009). Along with reductions in capital-tax rates (e.g., Cao 2010; Swank 2006) and a retrenchment of public spending (e.g., Lee and Strang 2006), the global deterioration of labor rights constitutes additional evidence that globalization constrains domestic policy choices by imposing a neoliberal economic model on national governments, substantiating the lament that domestic political processes are becoming increasingly inconsequential as globalization intensifies (Przeworski and Yebra 2003). However, tightening global constraints do not result in uniform policy outcomes; instead, the relationship between the two is mediated by domestic regimes. Scholars have investigated the mediating role of domestic regimes for a range of issue areas, but little research has been done on labor rights in this regard.

Scholars have attempted to understand the mitigating effects of regimes on the influence of international institutions on labor rights. Using a simple bivariate analysis, a handful of regional studies have empirically investigated the co-variation between regimes and labor rights, revealing that, given the same exposure to pressure from these institutions, democratic states in developing regions are more likely to have better labor rights laws and practices (Anner and Caraway 2010; Burgess 2010; Cammett and Posusney 2010; Caraway 2010; L. J. Cook 2010). But these pioneering studies do not examine how regimes interfere in the relationship between globalization and labor rights.

Among the few exceptions, Mosley’s (2008, 2011) work theorizes the role of domestic institutions in mitigating the adverse effects of globalization. Nonetheless, Mosley’s theory relies heavily on institutions that are largely endogenous to domestic regimes. In addition, Mosley’s (2011) empirical strategy is designed to assess how domestic institutions mitigate the negative impact of trade on labor rights, but not how domestic regimes shape policy responses to international pressure to restrict labor rights.

In this study, I examine how domestic regimes mitigate pressure from economically competing states to reduce the protection of labor rights. I argue that democratic states provide higher protection and are more resistant to this downward policy pressure for two main reasons. Directly, democracy empowers workers through freedom of association and enfranchisement. Indirectly, democracy offers better protection of property rights, which lessens the need to use labor rights as an economic incentive. I also argue that this resistance to the downward pressure is more pronounced in practice than in law. These expectations are supported through analyses of a new global dataset on association and collective-bargaining rights for the period 1994–2012. Furthermore, the results show that more democratic states generate greater resistance to the policy pressure to restrict labor rights when they compete for export markets, but not when they compete for foreign direct investment (FDI).

This study contributes to the extant literature on the following fronts. First, with a few exceptions (Mosley 2008, 2011; Robertson and Teitelbaum 2011), the current research pays little attention to how institutions moderate the impact of globalization on labor rights (R. G. Blanton and Blanton 2012; R. G. Blanton, Blanton, and Peksen 2015; Greenhill, Mosley, and Prakash 2009; Mosley and Uno 2007; Neumayer and de Soysa 2006). This study specifically investigates how the level of democracy affects national responses to international pressure to restrict labor rights. Moreover, this study employs a conditional spatial econometric technique to analyze a new dataset on collective labor rights, which makes it possible to more accurately assess the conditioning effects of institutions in shaping domestic labor rights in the face of this international pressure in the last two decades.

In particular, the heterogeneity in labor rights policies across the globe found in this study echoes the recent literature (Greenhill, Mosley, and Prakash 2009). Although it is, in general, true that there is a race to the bottom, a focus on that overall picture can cause one to overlook the dynamics that defy this downward trend, as well as the forces driving those dynamics. Against the universal backdrop of the race to the bottom, Greenhill, Mosley, and Prakash (2009) find evidence for the possibility of a climb to the top: export destinations’ good labor laws diffuse to exporting countries, a foreign source of respect for labor rights. Parallel to Greenhill et al.’s research, this study reveals a domestic source of respect for labor rights.

Second, to understand the impact of the level of democracy on the linkage between globalization and labor rights, it is first necessary to understand the latter linkage itself. Recognizing the interdependence of policymaking processes across states, this study provides a more accurate way to capture the mechanism through which globalization shapes domestic labor protection. Specifically, adopting the structural equivalence technique to construct a variable that quantifies the pressure of economically competing states to restrict labor rights, this study offers an enhanced measurement of this mechanism, which in turn facilitates the assessment of the mitigating effect of democracy on it.

The remainder of the article is organized as follows. I first briefly discuss the previous research. I then show that democratic governments offer greater protection of labor rights. Afterward, I explain why democratic governments have the ability to resist the pressure to lower labor protection. An explanation of the research design follows, along with details on the data and empirical strategy. Finally, the findings are discussed and the conclusion is drawn.

Previous Research

The globalization and labor rights literature is burgeoning. However, very little research has considered how domestic institutions influence the policy power of workers in the face of globalization. Mosley’s (2008, 2011) work, which theorizes the role of domestic institutions in mitigating the adverse effects of globalization, is a notable exception. Nonetheless, because Mosley’s theory relies heavily on the role of leftist governments, the number of veto players, and the organizational level of labor, its applicability is limited. First, its focus on leftist governments overlooks the fundamental mechanisms that channel labor’s political preferences and determine its strength, given the fact that the historical emergence of leftist parties is itself a result of workers’ enfranchisement (Przeworski and Sprague 1986). Second, and similarly, the number of veto players, also inseparable from the political regime, is not positioned to offer a convincing account of how institutions channel the preferences of workers. Third, because greater labor protection implies a greater likelihood that labor is highly organized (Robertson and Teitelbaum 2011), the degree to which labor is organized is, in fact, endogenous to labor protection, which makes it problematic to offer the former as an explanation of the latter. Therefore, it is imperative to treat the political regime as a vital factor shaping labor rights. However, none of the current research tries to clarify the connection between the two. Without this theoretical clarification, researchers are also unable to determine how the political regime conditions the influence of globalization on labor rights.

In addition, empirically, the scarce work only assesses how domestic institutions mitigate the negative impact of trade on labor rights, but not how domestic regimes shape policy responses to international pressure to restrict labor rights (e.g., Mosley 2011). It is, however, labor policies in economically competing states rather than economic flows that substantially affect domestic labor rights. States are pressured to reduce labor protection if their economic competitors have done so, as the race to the bottom thesis argues. Domestic regimes condition national policy responses to this pressure. The heterogeneity in policy responses, thus, arises from variations in domestic regimes.

Although Mosley (2011) notes the policy influence of similar states on labor rights choices in others, she only uses a crude measure to capture this influence—the level of economic development, which cannot accurately reflect how states recognize their economic competitors and make policy adjustment based on their competitors’ policy moves. Furthermore, she treats this influence merely as a control variable and, thus, misses the opportunity to evaluate how domestic regimes interact with it in shaping policy outcomes. A few recent studies by economists also fail to pinpoint the policy influence of economically competing states on labor protection, as they are unable to effectively identify the competing states (Davies and Vadlamannati 2013; Olney 2013).

In this study, I will try to address these shortcomings. First, I theoretically show that democracy improves labor rights by empowering workers, and that this empowerment, along with the additional institutional advantage of democracy, helps mitigate pressure to lower the protection of labor rights. Second, I create a novel measure to capture policy pressure from properly recognized economically competing states, a measure that makes it possible to evaluate these theoretical expectations more precisely.

Democracy and Labor Rights

Labor rights encompass a range of rights, from procedural ones, such as rights of free association and collective bargaining (FACB), to other more substantive ones, such as freedom from forced labor and right to equal treatment, which are largely affected by the former (Langille 1997). Both types of rights can benefit from democracy. But FACB rights are induced by democracy more directly, as these rights are congruent with some components of democracy, such as freedom of association more broadly (Linz 2000). The exercise of the freedom of association can result in a variety of organizations, from political parties to trade unions, and it is hard for democracies to only allow the political aspect of this right but outlaw the economic one. Therefore, by guarding the freedom of association, democracy serves as a means of realizing labor rights (see Tilly 1998) and should have an encouraging effect on the formation of unions.

Indeed, the advent of democracy often raises the number of unions. Many democratized states have experienced substantive growth in the number of unions, including Argentina, Brazil (M. L. Cook 2002), Indonesia (Lindblad 2002), and Eastern European states (L. J. Cook 2010).¹ Regional studies also suggest that more democratic states usually have better FACB rights records (e.g., Burgess 2010; Caraway 2010). In contrast, in authoritarian states where the political exercise of the freedom of association is extremely restricted, FACB rights are also more likely to be suppressed. For example, the Chinese government, being inimical to political and civil liberties, allows neither independent unions nor collective bargaining (Chen 2016; Josephs 2009). Workers’ collective actions are frequently defused in China as well (Chen and Xu 2012). The authoritarian Middle East states share the same characteristics regarding labor rights (Cammett and Posusney 2010).

Furthermore, the exercise of the freedom of association can be self-sustaining. In other words, the result of its exercise helps prevent the government from revoking it, which gives workers a strong bargaining position vis-à-vis the state. M. L. Cook (2002) demonstrates that, facing economic reforms intended to restrict labor rights in the 1990s, the federation of trade unions in Argentina, empowered by the democratic transition, threatened general strikes, which eventually helped them maintain their bargaining power and organizational capacity; but in Chile, where there was a lack of powerful and independent trade unions as a result of the military dictatorship, workers were unable to do the same. Likewise, Madrid (2003, 64) finds that in Mexico, deregulatory reforms that indiscriminately impose severe costs on unionized workers, especially reforms that “undermine the institutional resources of the unions,” are more apt to meet vigorous opposition from organized workers.

Admittedly, there can be a decoupling between the protection of civil and political rights on one hand and labor rights on the other in a democracy.² For example, a regime may respect the freedom to form and join a political party while ignoring or even abusing the right to form or join a union (Adams 1993). However, much like physical-integrity human rights, whose abuse is more associated with nondemocracies than democracies (Bueno de Mesquita et al. 2005; Davenport and Armstrong 2004), it is harder to restrict labor rights in democracies, as other institutional components of democracy, such as elections, can effectively prevent the violation of these rights.

As a large segment of society and a significant proportion of the electorate, workers can generate substantial influence on the result of political competition in a democracy. Overlooking the needs of workers or exclusively favoring capital over workers may cost politicians. Fearing electoral punishment by workers, politicians, thus, have an incentive to support their policy demands. For example, Dubofsky (1994) shows that elections increased labor standards even in the nineteenth-century United States. Therefore, through the electoral control of politicians, democracy increases the cost to the state of colluding with capital, thus, enhancing the bargaining power of workers relative to that of the employers. Empirical research reveals that workers earn higher wages in democracies (Rodrik 1999), suggesting stronger bargaining power on the part of labor in these states and corroborating that democracies better protect FACB rights.

Therefore, the above leads to the following expectation:

Hypothesis 1 (H1): More democratic states tend to provide greater protection of labor rights.

Democracy Mitigates the Policy Pressure to Restrict Labor Rights

Upon observing economically competing states lower labor protection, states feel pressed to do the same. However, more democratic states find it difficult to do so, because workers have both the organizational capability and the political eligibility to fight policies that weaken their bargaining power. First, as discussed above, democracy empowers workers through the freedom of association and the right to vote. Using the freedom of association, workers form unions to solve the collective-action problem and, thus, amplify their policy influence. As a result, workers in democratic states are in a better position to elicit policy concessions from the state, such as negotiating less intrusive labor-related conditions in International Monetary Fund (IMF) loan programs (Caraway, Rickard, and Anner 2012) and forcing the inclusion of labor clauses in trade agreements (Hafner-Burton 2009). Under democracy, workers are more likely to use their organizational power to resist policies intended to restrict labor rights (Pontusson 2013; Rueda and Pontusson 2000).³ Caraway (2010) has documented that during the early 2000s, unions in Indonesia successfully thwarted the government’s attempts to increase labor-market flexibility, although its regional peers, by virtue of their authoritarian power, had already implemented such changes with ease.

Furthermore, as aforementioned, in democracies, workers can use elections to control politicians, and the electoral control of politicians enhances the bargaining position of labor vis-à-vis capital. Although states are pressured and tempted to lower labor protection to maintain a competitive edge, politicians cannot cater solely to the demands of capital without jeopardizing their political tenure. Margalit (2011) shows that workers in the United States vote incumbent politicians out of office for dismissing their demands. Hence, politicians have the incentive to satisfy workers by sustaining a high protection of labor rights.⁴ Conversely, in the absence of such control, the state can easily suppress the interests of workers while favoring those of employers, as has happened in China during its massive economic reform (Gallagher 2004), which has put it in line with its regional authoritarian peers (Caraway 2010). In addition, the peaceful effect of labor rights, especially FACB rights, on conflicts resulting from attempts to liberalize economy (Robertson and Teitelbaum 2011) should also make politicians hesitate to lower the level of labor rights protection.

Last but not least, the fact that a regime is democratic also lessens the need to diminish labor rights, as democracies make a credible commitment to protecting property rights (North and Weingast 1989; Olson 1982). This advantage makes democratic states more economically attractive than their autocratic counterparts and causes them to receive more FDI and portfolio investment (Li and Resnick 2003). This inherent institutional advantage should also decrease the likelihood that investors will exploit other economic incentives in democratic states. It has been shown that democracies have a lower tendency to provide tax incentives to foreign investors because they guarantee better protection of property rights (Li 2006). In a similar vein, we can also expect this substitutive relationship to exist between labor rights incentives and property rights: because better protection of property rights draws more investment, democracies can take a stronger position on labor issues in investment negotiations without worrying about the economic consequences of doing so. Investors who are mainly forward-looking and have a longer time horizon also find it beneficial to pay higher labor costs in exchange for more investment safety.

This discussion above, however, does not mean that democratic states do not reduce labor protections at all. It rather implies that they are less prone to satisfying the demands of capital at the cost of the interests of labor. Politicians try to seek compromises with both capital and labor. Hence, democracies mitigate the policy pressure to diminish labor protection rather than fully offset it.

Therefore, my second hypothesis is as follows:

Hypothesis 2 (H2): More democratic states show more resistance to pressure from economically competing states to diminish labor rights protections.

Labor Rights Law and Practice

Among many others, Bhagwati (2004, chap. 12) notes that legislative changes are often politically costly; therefore, laws may likely remain unaltered if a state decides to change policies. Adjusting policy implementation is less explicit and more cost efficient. Multiple-year reports by the Fair Labor Association corroborate the embracing of this strategy. For example, in Central America, despite laws protecting established core labor standards of the International Labour Organization (ILO), the violation of labor rights is widely present (Fair Labor Association 2003). In addition, although significant legal controversies exist for identifying violations of core labor standards, the extensive bad labor rights practices remain attributable to insufficient governmental involvement (Moran 2002, chap. 4), which also suggests that governments deliberately loosen the implementation of labor rights laws. Moreover, downgrading labor rights laws can more easily incur international reputation cost because it is immediately observable while the actually deteriorating protection is less discernible. Research has shown that states ratify human rights treaties to create a false positive image (Hafner-Burton and Tsutsui 2005). Similarly, states should enact good domestic laws to foster the appearance of caring about labor rights. As a consequence, states are less responsive to the deterioration in labor rights laws among economic competitors than to the deterioration in competitors’ labor rights practices.

Hypothesis 3 (H3): The policy interdependence should be more observed in labor rights practices than labor rights laws.

Hypothesis 4 (H4): Faced with the pressure from their economic competitors’ to lower labor rights protection, democracies are more likely to resist it in the practical protection of labor rights than in the legal protection of labor rights.

Research Design

Data

I test the proposed theoretical arguments with data on FACB rights, which, as mentioned above, are process-related rights and shape labor standards in substantive categories (Langille 1997). The unit of analysis is country-year.

Kucera (2002) first compiled such data for a relatively short period, 1993–1997. Using Kucera’s coding scheme, Mosley and Uno (2007) provides available data on FACB covering a longer period, 1985–2002, but only for developing countries. Despite its greater temporal coverage, Mosley and Uno’s data are still limited in their spatial coverage and are not updated. M. Colin Barry, David Cingranelli, and K. Chad Clay (2015) launched a new project to code information regarding labor protection for 1994 to 2012 from annual US Department of State Human Rights Reports, which cover all states. This effort represents a substantive improvement on Mosley and Uno’s data: it updates temporal coverage and is useful for detecting changing labor rights patterns in more recent years. Barry et al. code freedom of association and collective-bargaining rights separately, with each ranging from 0 to 2 (0 = complete lack of protection, 1 = partial protection, 2 = full protection). Instead of providing an overall score, they distinguish law from practice.⁵ They use law to indicate what rights, such as the right to form and join a union, to strike, and so on, are recognized in national legislation and the extent to which they are protected, and practice to measure how the state actually protects these rights.⁶ I sum the scores of these two rights based on the affinity between them.⁷ The results are two new dependent variables, FACB Law and FACB Practice, ranging from 0 to 4, representative of five levels of labor protection: no protection, low protection, medium protection, high protection, and full protection.⁸

Model Specification

H1 suggests that the level of democracy is one key independent variable. I use the polity score (Marshall and Jaggers 2012) as its measure. The polity score has a maximum of 21 points, with a larger value indicating a greater degree of democracy, and it can capture great variation across regimes. It is predicted that a greater degree of democracy is associated with better protection of labor rights.

H2 postulates that more democratic states are more resistant to downward policy pressure from economic competitors, which leads to heterogeneity in subsequent policy responses. To test this hypothesis, I first isolate the impact of the policies of a state’s economic competitors on its own policy choice. Because a state can compete with many others at the same time to varying degrees, a connectivity matrix is needed to weight the impact of the policies of competing peers proportional to their respective competitive distance (Elkins, Guzman, and Simmons 2006) to a state under observation.

Following the extant literature (Baccini and Koenig-Archibugi 2014; Cao 2010; Elkins, Guzman, and Simmons 2006; Wang 2016), this connectivity matrix is produced by calculating structural equivalence, a concept from the social network analysis literature, which measures similarity based on the dyadic positional proximity in a network. In the context of globalized economic competition, structural equivalence is Pearson’s correlation coefficient (r) between two states’ economic profiles.⁹

The policy diffusion literature suggests that states compete fiercely for FDI and overseas markets (Barthel and Neumayer 2012; Cao and Prakash 2010; Elkins, Guzman, and Simmons 2006). Employing data on bilateral FDI stock (UNCTAD 2013) and bilateral exports (United Nations [UN] 2013),¹⁰ I generate two sets of row-standardized weighting matrices: $ω_{j, i, t}^{F D I}$ and $ω_{j, i, t}^{E x p o r t s}$ , where j is a competing state of i in year t, and its competitive distance to i is captured in Pearson’s r—the entry of the matrices, which ranges from −1 to 1, with the higher value indicative of greater similarity in economic competition.¹¹ For example, if the Pearson’s r between two states is above 0 for FDI, then these two states are more likely to compete for capital from the same source countries. A greater r simply means that two states compete for capital of the same origin with increasingly similar intensity.

The key independent variable, Competitors’ policy, is, thus, produced based on these weighting matrices. Competitors’ policy is an N × 1 vector for each observation year, a mathematical product of $ω_{j, i, t}$ and the vector of labor rights scores _j,t. As a result, the influences of labor polices of closely competing states are assigned greater weight than those of remote competitors. As H2 is a conditional one, I interact Competitors’ policy with democracy to gauge the conditioning effect of the latter. The interaction term is expected to be negative.

I also include a series of conventional control variables drawn from the literature (R. G. Blanton, Blanton, and Peksen 2015; Davies and Vadlamannati 2013; Mosley 2011; Neumayer and de Soysa 2006): FDI inflows (% of gross domestic product [GDP]), Exports (% of GDP), and Imports (% of GDP) as measures of economic openness; GDP per capita as the measure of income level; Economic growth as the annual growth rate of GDP per capita; Natural resources rents (% of GDP) to tease out the impact of economic dependence on oil and other natural resources (S. L. Blanton and Blanton 2009; Mosley 2011); Population (World Bank 2012); Leftist government to determine the degree to which the party of the chief executive leans to the left (Beck et al. 2001; Keefer 2010); Civil war (Gleditsch et al. 2002); and Learning, a measure of neighboring states’ labor rights policies, to control for the alternative policy diffusion mechanism.

Estimator

First, because, as previous research argues, there is a positive relationship between labor movement and democratization (e.g., Bellin 2000), there is a potential endogeneity issue in assessing the effect of democracy on labor rights.¹² To address the endogeneity, I follow the literature to adopt a two-stage modeling approach (Kim and Gandhi 2010). I first set labor rights as independent variables and use them and other controls to predict the democracy score for each country-year by means of a linear model.¹³ I then employ the predicted democracy scores to estimate the effect of political regime on labor rights with an ordered probit estimator.

Second, to examine how domestic regimes shape policies in response to the pressure to lower the protection of labor rights, an appropriate econometric model should be able to address both policy pressure and heterogeneity in subsequent policy responses.¹⁴ A spatial conditional model proposed by Neumayer and Plümper (2012; also see Franzese 1999) is competent to assume this task.¹⁵ Therefore, I estimate the following equation:

\begin{array}{l} y_{i t} = ρ_{1} [ω_{j, i, t - 2} \cdot y_{j, t - 2}] + \\ ρ_{2} [ω_{j, i, t - 2} \cdot y_{j, t - 2}] \cdot Z_{i t} + φ Z_{i t} + \\ α [y_{i, t - 1}] + β X_{i t} + ε_{i t} . \end{array}

The first bracket encloses the Competitors’ policy variable; ρ₁ is its coefficient and expected to be positive, indicative of policy interdependence. $Z_{i t}$ is the predicted level of democracy. The coefficient $ρ_{2}$ of the interaction term is expected to be negative, suggesting a mitigating effect. $y_{i, t - 1}$ is the lagged dependent variable to control for policy inertia. X_it are control variables. $ε_{i t}$ is the error term. I calculate Huber-White standard errors, which help remedy possible heterogeneity and within-panel serial correlation. Furthermore, it has been shown that the conventional year fixed effect considerably diminishes the co-variation between the dependent variable and the policy interdependence variable, yielding negative findings; it is, therefore, not appropriate for a spatial econometric model.¹⁶ I instead use a five-year fixed effect to isolate the impact of longer temporal trends. Because FACB Law and FACB Practice, the dependent variables, are constructed as an ordinal categorical type, I employ the ordered probit model to estimate the equation above. Last, as statistically, the unit (country here) fixed effects cannot be removed in the ordered probit model without causing biases (Stata 2003), I use a region dummy to eliminate these unobserved invariable effects, which has been demonstrated to be an effective approach in practice (Neumayer and de Soysa 2011).

Findings

Table 1 summarizes the results for how democracy affects FACB rights. It shows that democracy improves FACB rights in both law and practice, confirming H1. This relationship holds in the presence of policy interdependence. Controlling for either type of competitors’ policy does not substantially weaken this positive effect. Based on Models 1 and 3, I calculate the substantive effect of democracy on FACB rights by increasing democracy from −10 to −4 or by 1 standard deviation (SD) and setting others at their means or modes (for dummies). The results are presented in Table 2.

Table 1.

Democracy and Labor Rights.¹⁷

	Law		Practice
	FDIModel 1	ExportsModel 2	FDIModel 3	ExportsModel 4
Lagged dependent variable	2.540*** (0.112)	2.600*** (0.113)	1.788*** (0.069)	1.852*** (0.068)
Democracy	0.051*** (0.015)	0.032*** (0.010)	0.022** (0.010)	0.018** (0.009)
Competitors’ policy (rho = FDI)	−0.038 (0.037)		−0.000 (0.006)
Competitors’ policy (rho = Exports)		−0.063 (0.228)		0.754*** (0.233)
Learning (rho = Neighbors)	0.057 (0.217)	0.010 (0.200)	−0.174 (0.262)	0.088 (0.247)
FDI inflows (% of GDP)	0.010 (0.008)	0.011 (0.008)	−0.002 (0.005)	−0.000 (0.005)
Exports (% of GDP)	0.001 (0.002)	−0.001 (0.002)	0.000 (0.001)	−0.001 (0.001)
Imports (% of GDP)	−0.003 (0.003)	−0.000 (0.003)	−0.000 (0.003)	0.001 (0.002)
GDP per capita (ln)	0.018 (0.045)	0.064** (0.028)	0.066* (0.037)	0.130*** (0.026)
Economic growth	−0.018* (0.010)	−0.020** (0.010)	−0.005 (0.008)	−0.006 (0.008)
Total natural resources rents (% of GDP)	0.001 (0.003)	0.000 (0.003)	−0.001 (0.003)	−0.001 (0.003)
Population	−0.116*** (0.038)	−0.074** (0.032)	−0.102*** (0.031)	−0.027 (0.028)
Leftist government	0.199*** (0.076)	0.221*** (0.074)	0.193*** (0.071)	0.199*** (0.068)
Civil war	0.087 (0.115)	0.025 (0.106)	0.074 (0.116)	0.007 (0.111)
Year dummy	yes	yes	yes	yes
Region dummy	yes	yes	yes	yes
Observations	1,862	1,860	1,862	1,860
Log likelihood	−728.1	−741.1	−1,087	−1,112
χ²	864.0	792.8	1,158	995.4

Robust standard errors in parentheses. FDI = foreign direct investment; GDP = gross domestic product.

p < .1. **p < .05. ***p < .01.

Table 2.

Substantive Effects of Democracy on FACB Rights.

With 1 SD increase in democracy	Change in law (%)	Change in practice (%)
Pr(no protection)	0 [−0.0000, 0.0000]	−13 [−0.0120, 0.0034]
Pr(low protection)	−50 [−0.0006, 0.0001]	−8 [−0.0154, −0.0097]
Pr(medium protection)	−11 [−0.0794, −0.0653]	+1 [0.0072, 0.0119]
Pr(high protection)	+20 [0.0716, 0.0724]	+25 [0.0073, 0.0074]
Pr(full protection)	+83 [0.0002, 0.0009]	0 [−0.0000, 0.0001]

FACB = free association and collective bargaining.

For FACB Law, this increase in democracy has no influence on the probability of offering no protection. But it considerably reduces the probability of providing low and medium levels of protection, by 50 percent and 11 percent, respectively. Accordingly, this democratic improvement increases the probability of providing high and full levels of legal protection by 20 percent and 83 percent, respectively. For FACB Practice, this increase in democracy lowers the probability of denying any actual protection by 13 percent. It also reduces the probability of providing a low level of actual protection by 8 percent. In contrast, this democratic improvement raises the probability of providing medium and high levels of protection, by 1 percent and 25 percent, respectively. However, such improvement in political regime has no effect on the probability of granting full actual protection.

In addition, it is noteworthy that only competitors’ export-based policies achieve conventional statistical significance, but not FDI-based policies. There is strong policy interdependence among states oriented toward export competition, but not among those oriented toward FDI. In other words, states in export competition will reduce their own protection of FACB rights upon observing their competitors doing so. Moreover, such interdependence is pronounced in practice rather than in law, corroborating H3. Also, in terms of the magnitude of effects, competitors’ policy is only smaller than policy inertia, but remarkably larger than all other independent variables. This finding demonstrates that domestic labor rights protection is highly interdependent among states competing for export markets.

Tables 3 and 4 summarize the results for how democracy mitigates policy interdependence in FACB Law and FACB Practice, respectively. The mitigating effect suggests a negative sign on the interaction between democracy and competitors’ policy. As expected, it is negatively signed in both Models 7 and 8, for FACB Practice. However, it is positively signed in Models 5 and 6, for FACB Law. This is consistent with H4, which states that the mitigating effect of democracy on policy interdependence is stronger in practice than in law. In addition, competitors’ policy is positive and statistically significant at a 99 percent confidence level when states are oriented toward export competition but not toward FDI competition. Combining these findings suggests that the mitigating effect of democracy is pronounced solely when states compete for overseas markets, which makes states susceptible to the policy pressure to lower actual protection of labor rights. As the interaction term is comprised of two continuous constituent terms, its statistical insignificance should not be interpreted as the insignificance of the marginal effect (Ai and Norton 2003), which is the quantity of interest. I will use Figure 1 to illustrate the effect below.

Table 3.

How Democracy Mitigates Policy Interdependence in FACB Law.

	Law
	FDI	Exports
	Model 5	Model 6
Lagged dependent variable	2.545*** (0.111)	2.552*** (0.113)
Democracy	0.022 (0.017)	0.028 (0.109)
Competitors’ policy (rho = FDI)	−0.065 (0.049)
Democracy × Competitors’ policy (rho = FDI)	0.008 (0.008)
Competitors’ policy (rho = Exports)		−0.269 (0.371)
Democracy × Competitors’ policy (rho = Exports)		0.004 (0.043)
Learning (rho = Neighbors)	0.055 (0.217)	0.090 (0.230)
FDI Inflows (% of GDP)	0.009 (0.008)	0.009 (0.008)
Exports (% of GDP)	0.002 (0.002)	0.001 (0.002)
Imports (% of GDP)	−0.004 (0.003)	−0.003 (0.003)
GDP per capita(ln)	−0.002 (0.045)	−0.008 (0.043)
Economic growth	−0.017* (0.010)	−0.019* (0.010)
Total natural resources rents (% of GDP)	0.001 (0.003)	0.001 (0.003)
Population (ln)	−0.116*** (0.038)	−0.120*** (0.038)
Leftist government	0.196*** (0.076)	0.198*** (0.075)
Civil war	0.078 (0.114)	0.087 (0.114)
Year dummy	yes	yes
Region dummy	yes	yes
Observations	1,862	1,860
Log likelihood	−727.8	−728.3
χ²	855.6	857.9

Robust standard errors in parentheses. FACB = free association and collective bargaining; FDI = foreign direct investment; GDP = gross domestic product.

p < .1. **p < .05. ***p < .01.

Table 4.

How Democracy Mitigates Policy Interdependence in FACB Practice.

	Practice
	FDI	Exports
	Model 7	Model 8
Lagged dependent variable	1.788*** (0.069)	1.781*** (0.069)
Democracy	0.022 (0.016)	0.066 (0.081)
Competitors’ policy (rho = FDI)	0.001 (0.041)
Democracy × Competitors’ policy (rho = FDI)	−0.000 (0.008)
Competitors’ policy (rho = Exports)		0.940*** (0.332)
Democracy × Competitors’ policy (rho = Exports)		−0.023 (0.040)
Learning (rho = Neighbors)	−0.174 (0.264)	−0.035 (0.267)
FDI inflows (% of GDP)	−0.002 (0.005)	−0.002 (0.005)
Exports (% of GDP)	0.000 (0.001)	0.000 (0.001)
Imports (% of GDP)	−0.000 (0.003)	0.000 (0.003)
GDP per capita (ln)	0.066* (0.037)	0.050 (0.038)
Economic growth	−0.005 (0.008)	−0.003 (0.008)
Total natural resources rents (% of GDP)	−0.001 (0.003)	−0.001 (0.003)
Population (ln)	−0.102*** (0.031)	−0.097*** (0.031)
Leftist government	0.193*** (0.071)	0.194*** (0.071)
Civil war	0.074 (0.116)	0.042 (0.117)
Year dummy	yes	yes
Region dummy	yes	yes
Observations	1,862	1,860
Log likelihood	−1,087	−1,081
χ²	1,162	1,173

Robust standard errors in parentheses. FACB = free association and collective bargaining; FDI = foreign direct investment; GDP = gross domestic product.

p < .1. **p < .05. ***p < .01.

Figure 1.

How democracy mitigates policy interdependence in FACB practice.

However, it is difficult to visualize how democracy conditions the influence of competitors’ policy on FACB rights, because the constitutive variables of the interaction term are continuous, and the estimator is ordered probit, which considerably complicates the computation process and, thus, the visualization.¹⁸ To circumvent this barrier, I first dichotomize the democracy variable by using the predicted democracy score 6 as a cutting point. States with a score below 6 are assigned to the category of low democracy, while those above 6 are assigned to that of high democracy.¹⁹ I then show whether the probabilities of securing FACB rights in these two groups of states across levels of protection are statistically distinguishable from each other as competitors’ policy declines.

Figure 1 exhibits this calculated quantity of interest. As it shows, the predicted probabilities for high democracy (solid line) are statistically distinguishable from those for low democracy (dashed line) for no, low, medium, and high levels of protection for most of the competitors’ policy choices. When it comes to no protection of FACB rights in practice, neither high nor low democracy shows any tendency to diminish these rights while their competitors maintain high levels of protection. The difference begins to emerge once competitors lower their protection to the medium level of protection, and it increases as they lower it further. Despite this continuous decline in competitors’ protection, high democracy registers almost no change in the probability of providing no protection of FACB rights, whereas low democracy displays a monotonically increasing trend of doing so. And this difference is highly statistically significant, as the confidence intervals of the two groups of predicted probabilities do not overlap. The same can be said of the low level of protection.

For the medium level of protection, when competitors provide full protection of FACB rights in practice, high democracy shows a lower probability of offering a medium level of protection than does low democracy. As competitors continue to reduce the level of protection, high democracy displays a higher probability of maintaining the given level of protection, while low democracy exhibits a diminishing probability of opting for such a policy. This difference is drastic when competitors lower their level of protection to 1, or low protection. In spite of this huge downward pressure, high democracy still shows a 0.8 probability of providing a medium level of protection. In contrast, low democracy only has around a 0.1 probability of doing so.

For the high level of protection, high democracy also exhibits a strong advantage over low democracy in resisting the downward policy pressure from competitors. Admittedly, neither of these two groups is immune from the race to the bottom: both show a downward trend as competitors decrease their level of protection of FACB rights. However, the difference between the two is also indisputably evident. High democracy displays a much higher probability of providing high protection of these rights than does low democracy. This is even true when competitors only choose to provide low protection. In that scenario, low democracy shows zero likelihood of providing a high level of protection, whereas high democracy is 8 percent more likely to do so.

Differing from prior studies, which overlook the policy interdependence among economic-competitor states (R. G. Blanton and Blanton 2012; Neumayer and de Soysa 2006), this study finds that neither FDI inflows nor exports are a significant factor in policymaking on labor protection. Together with the evidence confirming policy interdependence, as shown by the positive and statistically significant coefficients of Competitors’ policy, this finding leads me to conclude that economic globalization is not a determinant, but rather a channel through which the negative externality of competitors’ deteriorating labor policy is carried out. Consistently with previous research (Mosley 2011; Neumayer and de Soysa 2006), income level shows no uniform influence on the protection of labor rights. Faster economic growth is more likely to weaken FACB Law than Practice. Higher natural resources rents do not affect FACB rights. A larger population, as a robust predictor, impedes the protection of FACB rights, in line with the previous research (Mosley 2011). Learning is statistically insignificant, which is not surprising, as the impact of neighboring states’ policies has likely been absorbed by Competitors’ policy. Leftist government is, in general, associated with better protection of labor rights in both law and practice (R. G. Blanton, Blanton, and Peksen 2015). Civil conflict has no bearing on the protection of labor rights.

Robustness Checks²⁰

As mentioned, Mosley and Uno’s (2007) alternative data on labor rights, which provide overall scores of labor rights for all developing countries from 1985 to 2002, have been used in previous studies (Mosley and Uno 2007; Neumayer and de Soysa 2006). Using the same model specifications as employed in the main estimations, I adopt a fixed effects model to analyze Mosley and Uno’s data. The results are in accord with those in the main analyses. Democratic states generally offer better protection of labor rights. Respecting the mitigating effect of democracy, the interaction terms remain negative but attain statistical significance only for export competition, indicating that more democratic states exhibit greater resistance to policy pressure from export competitors, but lower resistance to pressure from FDI competitors.

In addition, R. G. Blanton, Blanton, and Peksen (2015) show that structural adjustment programs, such as those run by the IMF, lower the protection of FACB rights; therefore, to control for this effect, I include one variable—the number of years under structural adjustment. I take data from Abouharb and Cingranelli (2009). I also include the number of human rights nongovernmental organizations (NGO) in its logged form in a country, the data for which are obtained from Murdie and Davis (2012). The results provide support to two hypotheses in varying degrees.

Conclusion

Current research provides ample evidence that globalization subjects domestic policymaking to tightening international constraints. However, there is no reason to assume that states facing these constraints will respond similarly regardless of their political regimes. In this study, I attempt to demonstrate how democracy affects policies concerning process-related labor rights, or FACB rights, in an era of intensifying globalization. I argue that democracy improves labor rights by empowering workers through the freedom of association and enfranchisement. More important, along with another institutional advantage of democracy—the protection of property rights—such empowerment can help resist the policy pressure from economic competitors to restrict labor rights.

Ascertaining the mitigating effect of democracy first requires identifying the constraints imposed by globalization. I have created an innovative measure to capture this constraint. The rationale behind this measure is that states change policies in response to their competitors’ policy changes, which can create a type of negative externality such that states refusing to follow suit would be placed in disadvantage. The existing literature rarely conceptualizes or assesses the impact of globalization on labor rights by taking into account the interdependence in policymaking processes among states with similar economic profiles, as a result of which it presents inconsistent findings. But with this novel measure, this study goes some way toward adjudicating this inconsistency. The finding here reveals that policy interdependence only exists in states competing for export markets, but not among those competing for FDI, which echoes Mosley’s (2011) finding that exports have a suppressing effect on FACB rights. It, thus, also challenges the conclusion that trade either benefits labor rights or has no effect on them at all (R. G. Blanton and Blanton 2012; Neumayer and de Soysa 2006). In addition, to some extent, the finding that there is no policy interdependence in laws among export-competing states seems to indirectly corroborate the conclusion by Greenhill, Mosley, and Prakash (2009) that good labor laws can diffuse from export destinations to exporting countries. In the meantime, I find no evidence of the race to the top among states competing for FDI, which is roughly in accord with the findings in some other influential works (R. G. Blanton and Blanton 2012; Neumayer and de Soysa 2006).

In addition, the findings here are consistent with recent studies in the policy-diffusion literature, which reveal that economic competition, for export markets in particular, is a major driving force behind the diffusion of policies with significant economic implications (Baccini and Koenig-Archibugi 2014; Cao 2010; Elkins, Guzman, and Simmons 2006). The diffusion of lower labor rights protection proves no exception: domestic policies on FACB rights are more interdependent among national competitors for export markets. Furthermore, it is interesting that competition for FDI does not drive the spread of similar capital-tax policies (Cao 2010) or of labor rights. What causes this difference requires further research.

Moreover, using a cross-sectional time series dataset on FACB rights for the period 1994–2012 on a global scale, this study systematically investigates the intermediating role of domestic institutions in the relationship between global policy interdependence and national policy outcomes, which improves on the existing research that is mainly qualitative (Mosley 2008, 2011). The quantitative evidence lends support to the proposed theoretical argument: more democratic states are less likely to yield to the pressure to reduce their protection of FACB rights in both law and practice than their less democratic counterparts, maintaining a more autonomous policymaking process. This finding comports with those made in earlier regional studies with a different focus (Anner and Caraway 2010; Burgess 2010; Cammett and Posusney 2010; Caraway 2010; L. J. Cook 2010). It also shares the conclusion in the burgeoning literature on globalization and policy diffusion that inclusive institutions are more likely to induce policy outcomes beneficial to a large segment of a society (Basinger and Hallerberg 2004; Kerner and Kucik 2010).

Last, the liberalization literature has shown that workers help promote globalization in latecomer states by facilitating free trade (e.g., Mansfield, Milner, and Rosendorff 2002; Milner and Kubota 2005; Milner and Mukherjee 2009). The finding in this study demonstrates that workers can also resist the erosion of their power through globalization by, for example, fighting the evil of social dumping, provided that more inclusive regimes are installed.

Footnotes

Acknowledgements

I would especially like to thank David Cingranelli for his invaluable suggestions. I would also like to thank Benjamin Fordham, Mikhail Filippov, Ekrem Karakoç, Amanda Licht, and three anonymous reviewers for their helpful comments. All errors remain mine alone.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Supplemental Material

Replication data for this article can be viewed at .

Notes

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Supplementary Material

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Democracy,Policy Interdependence,and Labor Rights

Abstract

Keywords

Introduction

Previous Research

Democracy and Labor Rights

Democracy Mitigates the Policy Pressure to Restrict Labor Rights

Labor Rights Law and Practice

Research Design

Data

Model Specification

Estimator

Findings

Robustness Checks 20

Conclusion

Footnotes

Acknowledgements

Declaration of Conflicting Interests

Funding

Supplemental Material

Notes

References

Supplementary Material

Robustness Checks²⁰