PUBLIC RULES OR MARKET ENFORCEMENT? INSTITUTIONAL GAPS AND THE COST OF COMPLIANCE IN MARITIME LABOUR

Abstract

The Maritime Labour Convention (MLC, 2006) was designed to harmonise minimum standards of working and living conditions at sea across jurisdictions. Despite its near-universal ratification, significant disparities in labour conditions persist, indicating limited effectiveness in the implementation of the regulatory framework.
This article aims to explain this paradox by analysing the MLC through the lens of institutional economics and multi-level governance. In particular, the study examines how the institutional structure of the system—encompassing both public and private actors—affects the effectiveness of enforcement. It advances the argument that the limitations of the MLC do not stem from insufficient regulatory harmonisation, but rather from the system’s limited capacity to generate sufficiently high and consistent costs of non-compliance. The analysis demonstrates that the hybrid and multi-level governance structure gives rise to three types of institutional gaps: vertical, horizontal, and perceptual. Drawing on data from Port State Control (PSC) regimes, the study shows that deficiencies related to working conditions are relatively frequently identified, whereas detentions—representing the primary enforcement mechanism associated with significant economic costs—remain relatively limited and uneven across regions. The findings reveal a systematic asymmetry between the detection of violations and their sanctioning. This asymmetry lowers the expected cost of non-compliance, weakens the deterrent function of regulation, and creates conditions conducive to regulatory arbitrage. At the same time, the analysis suggests that, in certain contexts, market-based mechanisms may generate stronger incentives for compliance than fragmented public enforcement systems.
The contribution of this article is threefold: (1) it develops a conceptual framework of three types of institutional gaps, (2) it links these gaps to regulatory arbitrage from a transaction cost perspective, and (3) it provides empirical evidence of enforcement asymmetry based on PSC data. The findings suggest that improving the effectiveness of the MLC requires strengthening enforcement mechanisms and increasing the credibility and consistency of sanctions, rather than further expanding regulatory standards alone.

The aim of this study is to identify and classify the key gaps in the implementation of the MLC and to explain how the configuration of these gaps enables institutional arbitration.

The identified configuration of vertical, horizontal, and perceptual gaps, reinforced by variation in enforcement capacities, explains why the MLC, despite widespread ratification, fails. Sustainable improvement requires the simultaneous closure of legal and practical gaps, as well as the limitation of institutional arbitration throughout the entire employment chain.