Dynamic labor standards under international oligopoly

This chapter models productive labor standards (LS) in a two-stage, two-period model of international oligopoly, where a home government chooses subsidies on LS and output first, and oligopolistic firms determine productions of LS and output later. We show that the optimal LS maintained is higher in a dynamic setup (i.e., across periods) than in a static setup (or when firms behave myopically). Thus, even in poor countries, it benefits to maintain a certain level of LS. A minimum international LS directly affecting only the less efficient firm may lower the profits of the rival firm also. With inter-temporal LS carryovers, first-period optimal subsidies are more efficient on LS than on output. If the home government cares about LS (or human rights) in the foreign country, then it is better not to provide home subsidies, because such subsidies reduce foreign LS.