Globalization and Its Impact on Labourand Their Response to Globalization

GLOBALIZATION AND ITS IMPACT ON LABOURAND THEIR RESPONSE TO GLOBALIZATION

GLOBALIZATION

— International integration of goods, labour, technology, and capital. (Slaughter and Swagel, 1997)

— International integration in commodity, capital and labour markets. (Bordo et al., 2003)

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LABOUR

Positive Impacts of Globalization on Labour

— International integration of goods, labour, technology, and capital. (Slaughter and Swagel, 1997)

— International integration in commodity, capital and labour markets. (Bordo et al., 2003)

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— ncreased demand for skilled workers and decreased demand for less-skilled workers.

— Increased technology and communications facilitates higher education.

— A rise in worker remittances.

— Increased accessibility of employment in new areas.

— Rapid technological change may be responsible for a more abrupt price decline in skill-intensive industries rather than in unskilled-labor-intensive.

Negative Impacts

— Difficulties of integration into the host community.

— Increase in poverty as a result of the concentration of low skilled and low paying jobs .

— Dramatic income inequality between the more and the less skilled in some countries.

— Unemployment among the less skilled in other countries.

— Limited employment protection

OF NOTE:

What explains the differences in wages and employment across countries is their labor market structures.

In countries with relatively flexible wages set in decentralized labor markets, such as the United States and the United Kingdom, the decline in relative demand for less-skilled labor has translated into lower relative wages for these workers.

In contrast, in countries with relatively rigid wages set in centralized labor markets, such as France, Germany, and Italy, it has meant lower relative employment.

INDUSTRY

Impact of Globalization on Industry

— The reduction of barriers to cross-border trade and capital flows, along with progress in transport and communication, has made it easier for firms to move parts of their production to less costly foreign locations—a process referred to as offshoring.

— The location of production has become much more responsive to relative labor costs across countries.

— Imports of intermediate manufacturing and services inputs (excluding energy) accounted for about 5 percent of gross output and about 10 percent of total intermediate inputs in advanced economies in 2003.

— Offshoring is relatively limited in the United States and Japan, in the same way that trade openness is usually low in large and booming economies.

— In 2003 , the offshoring intensity in manufacturing ranged from 4 percent in Japan to a high of about 25 percent in Canada. Interestingly, the rise in offshoring in advanced economies has been driven mostly by imports of skilled rather than unskilled inputs.

— The manufacturing sector has been most affected by offshoring.

— Domestic manufacturers produce more efficiently due to their international specialization.

— An actively trading country benefits from the new technologies that “spill over” to it from its trading partners, such as through the knowledge embedded in imported production equipment.

— For the advanced economies as a whole, trade with developing countries has led to about a 20 percent decline in the demand for unskilled labour in manufacturing.

— Goods traditionally produced in unskilled sectors (e.g., textiles) are more likely to be imported as final goods rather than intermediates.

— The bulk of advanced economies’ imports (of both final and intermediate products) still comes from other advanced economies and likely includes more skilled rather than unskilled products.

— The productivity- enhancing effect from trade in intermediates is large and trade in intermediates reduces the costs of production.

Commerce

Trade can be viewed as effectively shipping from one country to another the services of the workers engaged in the production of traded goods.

(Matthew J. Slaughter and Phillip Swagel)

Impact of Globalization on Commerce

— More and more output in the advanced economies consists of largely non-tradable services: education, government, finance, insurance, real estate, and wholesale and retail trade.

Perhaps it would be more accurate to measure the importance of international trade by considering merchandise exports as a share of the production of tradable goods only.

— The share of imports and exports in overall output provides a ready measure of the extent of the globalization of goods markets.

— Developing countries’ imports have been growing faster than those of advanced economies and the share of advanced economies’ exports going to developing countries has been rising.

— Changes in product prices are the result of trade rather than other, purely domestic, influences.

— Global competition has brought down international trade prices.

— The United States tends to specialize in skilled-labor-intensive products and to import labour-intensive products

RESPONSES

LABOUR

— Decentralization of labour market to industry hubs.

— Persisting large cross-country differences.

— Reductions in the tax wedge.

— Deregulation of product markets

INDUSTRY

— Changes in product prices brought about by competition from imports.

— Firms shift resources toward industries in which profitability has risen and away from those in which it has fallen.

— Governments often:

— prohibit or reduce selected imports by introducing quotas

— make imports more expensive and less competitive by imposing tariffs.

COMMERCE

— Policies should seek to:

— improve the functioning of labor markets

— strengthen access to education and training;

— ensure adequate social safety nets that cushion the impact on those adversely affected, without obstructing the process of adjustment.

— The adjustment costs can be minimized by:

— encouraging flexible labor markets and by reducing structural rigidities facing firms

— such as onerous work rules

— staffing requirements, and hiring and firing costs.

CONCLUSIONS

— There is a common belief that globalization harms the interests of workers, especially unskilled workers, either directly through immigration or indirectly through trade and capital mobility.

— Moreover, the belief that globalization threatens wages and jobs is contradicted by the historical evidence that free trade along with labor and capital mobility improve global welfare and tend to improve national welfare for all countries involved.

— Finally, cheaper imports have increased the size of real total labor compensation, implying that workers have participated in the benefits of the bigger economic “pie,” although their share of it has declined.

Bibliography

Bassanini and Duval, 2006;

Annett, 2006

Bordo et al., 2003

Florence Jaumotte and Irina Tytell, 2007

Grossman and Rossi-Hansberg ,2006

Prachi Mishra, 2007

Matthew J. Slaughter and Phillip Swagel, 1997