Made in Dignity: the redistributive impact of social labelling

Abstract

In this paper, we develop a North-South model to investigate the impact of social labelling, which certifies the adoption of high labour standards in the production of exports to the North. We show that the adoption of a label is never Pareto-improving if (i) a small fraction of eligible producers have access to the label, or if (ii) the price premium Northern consumers are willing to pay is just sufficient to cover the costs of adopting better standards. In these cases, we show that the welfare of Southern workers can increase if and only if the welfare of Northern consumers decreases. Southern workers are more likely to loose when the Northern demand for labelled goods is price elastic and the productivity losses associated with higher labour standards are small.