National Regulation In A Global Economy

This chapter for the Encyclopedia of Labor and Employment Law and Economics, discusses government regulation of the labor market in the 21st Century, with a particular emphasis on the need to maintain competitiveness in an era of globalization. The chapter first considers the 'race to the bottom' analysis, which predicts that a nation will experience depressed compensation and downward pressures on its regulatory system if the system provides comparatively high protections. It identifies theoretical and empirical findings both supporting and refuting predictions of a race to the bottom and portrays a more complex picture of the effects of globalization on national regulation. The chapter then describes the declining but continuing role of the state in the global economy. Mandatory labor market regulation is a common response to market failure. At the same time, traditional regulation is itself prone to a range of inefficiencies and failures. Given the continuing need for government intervention, the limits of traditional command-and-control regulation, and the growing pressures to liberalize markets, regulators around the world have developed increasingly innovative third-way approaches to regulation, often collectively referred to as the 'new governance model.' New governance approaches to regulation involve a more active role for private companies and organizations. Examples from various countries are discussed.