Exporting Labour Abuse out of Recession? How Economic Cycles in the Global North Affect Labour Conditions in the Global South

How might economic booms and busts in the Global North affect labour conditions in the
Global South? Existing studies find that trade linkages lead to the diffusion of labour
standards from importing countries to the exporting countries. This way developed countries
with superior labour standards can ratchet up labour standards in the developing world that
lag in this area. The crucial mechanism behind the process is the ability and willingness of
firms in importing developed countries to deploy their market leverage. We suggest that such
ability and willingness of importing firms to promote superior labour standards are
undermined when the home country suffers from economic downturns. Economic downturns
put pressure on firms’ sales and profit. Consequently, firms engage in cost-cutting efforts,
which include dropping corporate social responsibility related activities and demanding cost
reductions from their overseas suppliers. These suppliers respond by ignoring safety
regulations, squeezing their labour force in terms of longer working hours, etc. The
observable implication is that occupational injuries in developing countries increase during
the economic downturn in their developed export markets. Our analysis of 81 developing
countries for the period between 1980 and 2009 lends support to our hypothesis. Our finding
holds across several alternative measures of economic cycles.