Labor Regulations and the U.S.-Colombia FTA

There has been a great deal of discussion over the inclusion of labor protections in the recently negotiated U.S.-Colombia Free Trade Agreement. Presidential candidates and Congressional representatives have argued that the agreement should not go forward without the inclusion of provisions for labor union organizing, minimum wages, and other worker protections. Colombia is balking at this post-hoc revisioning of the agreement that the parties negotiated and concluded without such provisions.

Should Colombia accept more stringent labor provisions in their FTA with the United States? On the one hand, it would help existing labor unions and formal workers to secure more beneficial treatment under the law. Yet on the other, with the significant number of unemployed and informally (i.e., without labor law protections) employed workers in Colombia already, more rigid labor laws could reduce the firm demand for additional workers. If a firm today can hire someone formally more cheaply and with less social security benefits, adding more compliance requirements may push them to lower their demand for formal workers and pursue the vast quantities of available informal labor, which has no protections at all. Thus, the result of pushing for more labor protections for Colombian workers could actually result in the provision of less effective protection.

Informal Legal Institutions

Rule of law efforts in developing countries have had little success in achieving their goals of legal reform for the benefit of the majority. A new article by Kevin Davis and Michael Trebilcock provides an excellent summary review of the literature on point and concludes that, while we don't know which legal institutions are necessary for economic growth, we know that they are necessary in some form.

I just uploaded my latest working paper addressing one type of legal institution, informal legal mechanisms. It considers the contribution made by informal dispute resolution, contract enforcement, labor regulation and property titling, carried out largely in the informal economy in developing countries. The article is available here: http://ssrn.com/abstract=1144643.