Globalisation and Flexible Employment in Developing Countries

Globalisation and flexible employment in developing countries

DilmurodNasimov

Faculty of Social Economics, Samarkand State University, Samarkand, Uzbekistan

University blvd. 15, Samarkand, Uzbekistan 140104

+998915542440

Abstract

Focusing on two main models of economic development – transformation and crisis models – and their impact on flexibility, this paper analyses the efficiency of state influence on the flexibility of labour market in transition economies of post-soviet countries. The research on the relationship between poverty, minimum wage, GDP and level of social benefits concluded about discrepancy between the minimum wage and GDP dynamics,and between GDP and social benefits. The conclusions indicate the inefficiency of state regulation in mitigating the negative effects of price competition in the labour market and the importance of transition from a crisis to a transformational model.

Keywords:Institutional crisis, regulation, globalisation, labour market flexibility, Commonwealth of Independent States.

Introduction

The connection between the flexibility of the labour market and globalisation in the modern scientific discourse is researched primarily as an intrinsic property of the global economy, which is determined in terms of rapid technical development, a large number of international economic relationships, and many kinds of complex transactions and activities depending on the latest market requirements. Globalisation can lead to the emergence of new forms of work organisation, such as technological progress (the ability to work remotely with modern devices anywhere in the world); the liberalisation of labour laws (which allows the worker to create a balance between private life, education and work); technological revolution (which results in the mechanisation of the most onerous physical tasks); and a rise in the standard of living (which allows for the transfer of accumulated capital in human development).

But the impact of globalisation on labour market flexibility in developing countries is more often associated with a huge number of negative trends and risks. In this paper, we focus specifically on the countries of the Commonwealth of Independent States (CIS). Firstly, CIS countries have not yet completed their post-Soviet transformation, greatly reinforcing their dependence on developed countries. CIS countries are thus unable to win the price war, and this puts them in a disadvantageous position, increasing the negative effects of flexibility on the labour market. Thus, in many developing countries it is low-skilled and/or low-paid labour that is preponderant.

Furthermore, these countries’ high standards of social security, largely inherited from the Soviet Union, do not in fact increase the security of their workers, but merely inhibit the development of the economy and, through the mechanisms of labour flexibility, keep the workers from being provided with even a minimal amount of financial security. This is because the companies in the CIS countries can no longer afford to pay the high level of taxes required to provide pensions for 55- to 60-year-old workers, paid sick leave and the minimum wage. So if those companies are not to go out of business, they have to use labour market flexibility or break the law. As a result, corruption and a significant informal sector contribute to the discrimination and criminalisation of labour (Auer & Leschke 2005). That is why we focus on the relationship between the effects of globalisation on the labour market in developing countries and the transformation of the labour market through the tools of market flexibility.

1 Methodology

We primarily analysed the impact of globalisation on the internal processes in the labour market from an economic point of view. The reasons for the extent and nature of these effects were studied from the perspective of institutional theory. The results were verified using existing statistical studies and through comparison with results from developing countries, searching for correlations and the nature of the links between them. We obtained the regression equation for the impact of the minimum wages on poverty rates and GDP which has shown the exact level of state policy efficiency on labour market.

2 Results

We have shown and measured a highdegree of dependenceof developing countriesbetween theglobalisation process and its effect on the labour market flexibility. Due to institutional crises, these countries mostly suffer from the negative effects of globalisation on flexible labour market such as precarious work, lack of social security, and an inability to transform the economy in response to global competitiveness. We have also underlined the negative roleof governmentin addressingthe problems associatedwith the flexibility ofthe labour market. We have describedthe degree andmeasureof well-beingindicators depending on the success ofstate policyin the sphere oflabourprotection. As a result, we have obtained a clear link between the quality of state protection and labour market effectiveness. This is a response to our hypothesis about the roots of the impact of globalisation on labour market flexibility, as well as a good basis for further research.

3 Discussions

3.1 Differences in the development of labour market flexibilityin developing and developedcountries

During the collapse of the USSR and the concomitant structural economic crisis in the CIS countries, market flexibility instruments were used more to diminish employees’ rather than to develop the relationship between them and employers. Trying to avoid the significant financial benefits connected with their dismissal, especially in the crisis period, and to retain the qualified personnel, many businesses have used (and still use) various forms of part-time and precarious work in their practice. As a result, the crisis in production flexibility requires constant flexibility in the use of manpower and working hours (Rutkowski 2006). Unusual working-times here refer to regimes that go beyond the 8-hour workday and 40-hour working week normative.

Non-standard working arrangements in developing countries usually include part-time work and its variants (shorter working week, , job-sharing, flexible working hours, different variations of shift work, and so on). According to research, during the crisis of 1998–2000, approximately 30–35% of workers in Russia were involved in non-standard modes of working (Vishnevskaja et al. 2001).In crisis conditions, the part-time mode has become very beneficial for employers, as it gives them the opportunity to save qualified staff and resources for new staff recruitment procedures during the expansion of business activity. For employees, it is a choice between ‘bad’ and ‘worse’ – you can have a poor job, or no job at all. Although, for trade and service enterprises with their uneven workload during the working day, part-time mode working is often seen as reasonable.

The nature of labour market flexibility in developed countries has a completely different background, which is based on an increase in effectiveness and human capital value. The tendency to reduce working hours in Western Europe can be traced in terms of the actual working hours during the year per worker. In the second half of the nineteenth century, there were about three thousand hours per year for one worker. Under the influence of scientific and technological progress and productivity growth, the average annual fund of working time spent per worker during the period from 1879 to 2000 declined by 50% in the UK, 46–47% in the USA, Germany and France, and 36 % in Japan, which reflects not only the reduction of the working week, but also an increase in the duration of holidays (Vishnevskaja et al. 2001). Today, a number of European countries are working twice as less. In Germany, this figure was reduced from 2,300 hours in 1950 to 1,397 hours in 2002 (Shevchuk 2007). Compared to the level of GDP (gross domestic product) per capita, the dramatic difference in labour effectiveness between developed and developing countries leaves the latter very little chance on the global market.

In industrialised countries,under-employmentis common for every fourthworker.In particular, suchworkersmake up33% of the workforce in the Netherlands; 26% in Norway;more than 20% in Australia,the UKand Sweden; andfrom 10 to20% in Germany, Belgium, Canada, the USA, France and Japan (Council of Europe 2005). Discussions about the four-day working week are widespread in Sweden and many other countries.

In both developing and developed countries, flexible employment under normal conditions has common advantages and disadvantages. The main advantages include:

-working time regulations to meet the needs of workers;

-The ability to respond to economic changes;

-cost savings due to increased shifts;

-labour productivity growth (the use of flexible forms of employment leads to its increase by up to 20 % (Tangian 2007);

-rapid and effective responses to any changes in supply and demand in the labour market;

-minimising output problems employees’ pensions by the transition from full-time to flexible working; andincreasing (or decreasing when reduction in output) the number of employees, without increasing the number of jobs at the individual level – the ability to meet the needs of individuals working in conjunction with the implementation of other social responsibilities.

The common disadvantages for both developed and developing countries include:

-the poor corporate atmosphere;

-a lack of vertical connections; andworkers might suffer from a ‘sweatshop’ effect.

Describing the state of the labour market and its trends, most economists use the term ‘flexibilisation’ to describe the situation when the new balance of demand and supply is now stabilised by means of the flexibility of labour (Serageldin & Grootaert 1998). Flexibilisation of the labour market means increasing economic adaptability, expressed in a general decline in labour costs by employers, labour laws for the benefit of employers, encouraging the creation of jobs with part-time and hourly wages, increased employer’s flexibility for managing employees, removal of restrictions on hiring, changes in working conditions, and easy dismissal procedures for employers.

Analysing theoretical and methodological approaches to the characterisation of flexible employment and flexible labour markets in developing countries, our view should be positioned at the crisis and transformational models of flexible employment. This should be seen through a system of inter-related institutional and functional competencies of the subjects and objects of market relations, ensuring the adaptation of employment in current and long-term fluctuations in demand and labour supply at macro- and micro-economic levels. This means that, in the global economy, developing countries suffer from the disadvantages of flexibility and experience a lack of ‘flexicurity’ – the leading model in developing countries that aims to find a balance between social care on all levels and flexible forms of employment (Bauer & Zimmermann 1999).

Unlike the crisis model – which focuses on quantitative changes in employment at the macro-economic level, with a possible reduction of labour productivity, a low level of restructuring of employment and the underfunding of human capital development – the transformational model is focused on the growing impact of the use of labour resources at the micro-economic level, that provides increased productivity and growth of economic and social responsibility for the results of economic activity (Dutz et al. 2013).

Transition to the transformational model for developing countries involves not only the reform of labour market institutions but also a change in industrial relations that define the configuration of the domestic labour market. For this purpose, the means on the macro-economic level should be used; that is, the protection of property rights, the fight against corruption, reform of tax legislation and effective anti-monopoly policy. The features of both transformation and crisis models in developing countries are analysed in Table 1.

Table 1Flexible employmentmodelsfor developing countries

Criteria ofanalysis / Crisis model / Transformation model
Aim / Ensuring efficientallocation of resourcesand theirredistributionin establishingnewmarket equilibriumat the macro-economic level / Ensuring efficientresource allocationby adjusting thedirection andgoals of theeconomic agentsat the micro level
Subjects offlexibleemploymentmechanism / Meeting theneeds and interests of employersmainlythrough the use ofshort-termflexible employmentmechanisms / Meeting theneeds and interestsof both employersandemployeesthrough a balanceduseof short-termand long-termflexible employmentmechanisms
State regulation impact / Limitedgovernment support forthe unemployed, encouragingsearchof jobs, limited barriers tothe growth ofworkers’ mobility / State support forthe unemployedthrough activesocial programsto improve their competitivenessin the labour market
Factors of demand for flexibleemployment / Effects onmarket conditions,changes in demand forgoods and services / Factors oftechnological,structural, social, economic fluctuationsand production
Featuresof reproduction processes / Employment adaptation is mainlycarried out bya quantitativeincrease in the numberof workersandworking time / Employment adaptation is mainlycarried out viachanges inqualityemploymentoptions,as a result ofthe introduction of innovativetechnologies, newforms of work organisation, trainings, changes inindustrial relations
Effect ofcycles on employment / Dependingon the phase ofthe economic cycle, changingthe leveland scope ofuse of flexible employment(maximum use occursduring crisis) / Sustainedlevel of useof various forms offlexible employment, regardless of the economic cyclephase

Source: Based on Hinrichs & Jessoula 2012, Gimpelson & Lippoldt 2001, and Cazes & Nesporova 2001.

As we can see, the biggest problem of developing countries is the constant use of the crisis model on demand of short-time business actors. But in normal conditions, the high level of flexibility of employment provides a balanced use of both types of mechanisms aimed at both the interests of the workers and the interests of employers. Countries that have achieved a high level of employment flexibility show the ability to demonstrate a combination of practical mechanisms that reflect the interests of the two entities of the labour market – employers and employees. In other words, the flexibility of employment and social protection of workers do not resist and do not exclude each other (Hinrichs & Jessoula 2012). This provision is very important in terms of policy on the regulation of the labour market in developing countries, who remain prisoners of an overtaking development paradigm. Globalisation in this case rather exacerbates the gap, because it is advisable to consider the regulation of the employment of the state of the market as a mitigating measure to the global competition.

Thus, in general, flexible forms of working belong to the phenomena that characterise the new stage of development of the global economy. The transition from egalitarian distribution to the differential market type of society is widespread in developed countries.

However, for developing countries, the transformation of social and labour relations, unfortunately, does not have only positive effects. Modern labour markets in developing countries are characterised by discrimination of representatives of its individual segments in hiring and in the workplace. Under these conditions, it is important to develop measures for the protection of workers and potential workers both at the state and at the enterprise level.

3.2 Institutional problems in developed countries andlabour market flexibility

Full implementation ofthe concept ofa flexible labour marketin theformalstructure of labour market institutionsin developing countrieshas not yethappened(Bajkov 2011). For example, considering the labour market in times of crisis, we can notice its absolute ‘rigidity’. We could speak only about the individual specific elements of labour market flexibility, which have taken in many unique features. Among them are no alternative system of part-time employment, which is mostly forced by employers, and unpaid wages in many enterprises, and so on. Another feature of the labour market in developing countries is that often the employer and employee are not interested in the legally precise registration of labour relations (such a trend can be seen in the private sector in the first place).

An analysis of the social and labour sphere in developing countries allows us to highlight the following causes of such employer behaviour:

-by not placing an employment contract with the employee, the employer is evading compulsory payments to social funds, thus reducing labour costs. In particular, it is about the widespread practice of performing certain types of work at home. Today, domestic work has a complex structure: from the low-paid workers employed in manufacturing and processing of home goods of daily demand to highly skilled employees;

-the lack of sufficient information about the employee (skill, motivation, loyalty, ability to work);

-underdevelopment of the legal institutions of the labour market, including the arbitration court governing the contractual employment relationship.

That is why the employer wants to make these relations as flexible as possible, and invisible to a third party, as well as to minimise the potential costs of possible termination of that relationship. In many cases, these motives correspond to the interests of the employees themselves. In an effort to get the maximum benefit in the shortest possible time (especially in a volatile economic situation), many of them prefer the possibility of the current wage eventual profit in the future. All these factors stimulate their agreement to be flexible, ‘invisible’ labour relations.

On the other hand, it is necessary to ascertain the presence of an institutional crisis in developing countries, which significantly reduces the positive effects of globalisation and increase the negative. Formation of the institutional environment in the CIS countries takes place in an almost spontaneous mode, under the influence of decisions made independently of each other by the state, employers and workers. Changes in the system of labour relations, in particular – rise in unemployment, deepening differentiation and reduction of real incomes – are characterised by complexity and ambiguous estimates. In general, the situation on the labour market of the CIS countries is characterised by institutional instability, which manifests itself in the absence of effective institutions that could provide the conditions for market equilibrium (Cazes 2001).

One of the mainobstacles is theinstitutionalinertia ofemployment. This phenomenonmanifests itself in the non-compliance ofthe productiondynamics ofemploymentdynamics. We canclearlyseethat in the firsttransformation, the dynamics of employmentclearlycoincided with thedynamics of production (CISSTAT 2015). However, since 2012, this trend has changed, andthe dynamics of productionin unstableemploymenthas grown steadily. Almost half ofthis increase, though,is a statisticalartefact associatedwith the changein themethodology for calculating thenumber of countries, particularly in Russia (Gimpelson 2001).