Direct Democracy and Labour Standards of a Small Open Economy

Abstract

This paper investigates the controversial relationship between

labour standards and globalisation within a 2×2 Heckscher-

Ohlin-Mayer political-economy trade model. We adopt the median

voter model to characterise the labour standards chosen under

majority voting. We found that labour standards are more lax in

economies with large income inequalities. More importantly, we

also show that globalisation may or may not promote stricter

labour standards depending on the factor abundance of each

country. Thus, a race to the bottom is not an necessary

implication of globalisation.