Analysis of the Socio-Labour Consequences of Foreign Economic Activity Liberalisation Through the Lens of Institutional Ethics and Behavioural Economics

The accelerating integration of national economies into global trade networks has placed the question of distributional justice at the center of contemporary economic debate. While the aggregate efficiency gains from trade openness are broadly acknowledged in academic discourse, the socio-labor dimension of liberalization remains insufficiently theorized, particularly in the context of transition economies. The present article addresses this gap by examining the socio-labor consequences of foreign economic activity liberalization through two complementary analytical lenses: institutional ethics and behavioral economics. The institutional ethics directs attention to the question, whether the prevailing rules governing market openness, social protection, and labor relations satisfy criteria of fairness in the distribution of gains and burdens across social groups, sectors, and regions. This dimension is especially pertinent in economies where liberalization has proceeded faster than the development of compensatory institutional mechanisms, leaving significant segments of the workforce exposed to adjustment costs without adequate support. Behavioral economics, in turn, offers a departure from the standard assumption of rational, forward-looking labor market adjustment. The article examines how cognitive biases systematically shape the responses of workers, employers, and households to external trade shocks, producing outcomes that diverge markedly from those predicted by neoclassical models. Understanding these behavioral dynamics is essential for designing regulatory instruments that function effectively in the real world rather than in theoretical abstraction. The article further explores the interaction between institutional quality and behavioral patterns. Arguing that weak or dysfunctional institutions amplify the negative socio-labor consequences of liberalization by failing to provide credible commitment mechanisms, reliable information, or effective social dialogue. Particular attention is paid to the asymmetry between winners and losers from trade openness, the phenomenon of labor precarization. and the self-reinforcing dynamics of emigration.