The effect on international competitiveness of differing labour standards in the textile industry of the NIS and the EU

Abstract

The project which generated this paper arose from continuing concern in the European Union about the persistence of high unemployment and the likely effects of economic reforms in the Newly Independent States. The study brought together researchers from four countries: Finland and the United Kingdom in the EU and Belarus and Russia in the NIS. The purpose was to examine the impact that differing labour standards in the two NIS countries and the two EU countries have and are likely to have on the ability of companies in each country to compete internationally. The core research activity comprised a small number of in-depth case studies of firms in the textile sector, enabling comparisons to be made between the industries in each of the four countries. The lack of structure of labour markets in the NIS and their comparatively low labour costs posed a potential threat to the competitive position of the EU and this study set out to understand the relevant issues more fully from a number of different perspectives. These included comparing labour costs and productivity, social costs such as health and safety, pensions and other benefits and exploring the impact of investment on productivity. Ultimately the study focused on how a levelling up of labour standards in the NIS would impact on the EU Member States. This paper sets out the findings of the case studies within the textile industries of the respective countries. These specific finds are presented within the general context of a comparison of labour market conditions. For the most part, textile firms in the NIS are in a more vulnerable situation than their EU counterparts, with falling domestic demand in Russia and severe raw materials difficulties in Belarus typifying the problems. Lower labour costs in the NIS firms are counteracted by poor productivity and quality issues. Finnish and UK firms also feel vulnerable in a world market, but most have challenged this by developing higher quality, niche products. Higher labour standards does not currently represent a major factor affecting the competitive position of EU firms compared with those in the NIS.