Transgovernmental Labour Standards Enforcement in a Pan‐European Labour Market: An Arms Race Between Institutional Alignment and Regulatory Arbitrage

Transgovernmental co‐operation is an important European Union (EU) regulatory method, but it imposes transaction costs on the organizations involved. Regulatory requirements under conditions of European free movement drive transgovernmentalism, but transaction costs also shape transgovernmental regulation and regulatory outcomes. We investigate co‐operation around labour standards regulation for posted construction workers, focusing on bilateral co‐operation of labour inspectorates between Estonia and Finland and comparing it with co‐operation efforts between Poland and Finland, and Ukraine via Poland to Finland. The shifting patterns of labour mobility and employer efforts to recruit from less regulated sources mean that investment in bilateral relations can be undermined by the dynamic character of the pan‐European labour market. This article contributes to debates on EU regulatory governance by showing how transaction costs from co‐operation can decrease the effectiveness of transgovernmental network‐based governance; in the case of labour regulation, employers exploit this to undermine the effectiveness of labour inspection co‐operation.