'Social Dumping' and Relocation: Is there a Case for Imposing a Social Clause?

Tito Cordella and Isabel Grilo

No 1931, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Public opinion in Europe seems worried about the effect of lower-wage country competition. In both newspaper articles and in policy debates, the term ‘social dumping’ is becoming more and more popular. In many countries, trade unions worried by the effect of what they call ‘unfair competition’, propose the adoption of a ‘social clause’ protecting domestic markets from commodities produced in countries were minimal labour conditions are not met. We analyse the effects of such a policy in the framework of a vertically differentiated Bertrand duopoly. In particular, we study the effects of such a policy on the relocation decisions of the firms and perform a welfare analysis. The welfare analysis takes explicitly into account the unemployment situation in the domestic country by accounting for the workers’ welfare losses due to job reductions following the relocation of firms. We characterize the optimal social clause policy both under domestic welfare maximization and from an efficiency point of view. We show that, on domestic welfare grounds, the case for a social clause policy is weaker the higher the domestic wage and the lower the foreign wage.

Keywords: Production Relocation; social clause; vertical differentiation (search for similar items in EconPapers)
JEL-codes: F02 F12 F23 J60 L13 (search for similar items in EconPapers)
Date: 1998-07
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Citations: View citations in EconPapers (3)

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Journal Article: Social dumping and relocation: is there a case for imposing a social clause? (2001)
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