Increase in the Supply of Global Labor - Term Paper Example

? 5 April Globalization of labor: Introduction: With the rapid increase in globalization, labor markets all over the world have integrated considerably, particularly in the course of last twenty years. Economic reforms together with the massive political changes that have occurred across the globe in the recent years have caused such countries as India, Pakistan, China and other Eastern countries to undergo an altogether change in terms of the involvement of their labor forces into the economies of open market. Along with this, several other factors like the removal of restrictions and limitations over the capital flows and the trade across border, and the rapid advancement in the technology have enabled the production processes to be scattered. The number of products and services is rapidly increasing, but they are situated far away from the target markets. The production sites have become increasingly alert to the relative cost of labor across various countries. Every year, more and more people are migrating across borders, both legally and illegally. This has given boost to the process of globalization. Particularly, the labor market is becoming increasingly globalized. This matter has drawn the attention of media and policymakers towards itself, specifically in advanced economic regions. The question that is of the biggest concern from the resulting situation and that this paper aims at answering is, if the massive in-pour of labor from the underdeveloped countries into the developed countries is damaging the employment and compensation trends in their economies? This paper will also explore the rate of growth of the labor supply across borders in the recent years and the specific channels that have played a special role in promoting the globalization of labor. These form important aspects of the aforementioned question. Increase in the supply of global labor: In order to determine how globalized labor in the contemporary age is, it is imperative that the effect of progress of such Eastern countries as India and China on the global labor supply is studied. This requires estimation of the participation of these countries’ labor force in the global market. This can be achieved by examining the ratio of export-to-GDP in these countries. The effective supply of global labor has quadrupled in the 25 years from 1980 to 2005 (IMF 162). The increase in global labor supply particularly occurred after 1990. Although most of the increase in the labor supply across the world that has occurred in the recent years pertains to the movement of workers that have not attained higher education, yet there has also been a noticeable increase in the supple of workers that have formally attained higher education. According to an estimate, the global supply of such workers has increased by 50 per cent in the past 2.5 decades (IMF 162). Advanced economies may estimate the increase in the supply of global labor merely by reviewing the increase in demand of imports, or by reviewing the trends of immigration. A comparison of countries with respect to the impact of globalization: Impacts of the labor globalization have been most significant in the European countries and the Anglo-Saxon countries. According to (New Economist), globalization has generally caused a reduction in the labor’s share in the GDP: However ...In Anglo-Saxon and smaller European countries, labour-market policies have partially offset the depressing effects of technology and globalisation on labour's share, mainly by shaving the tax wedge between what workers take home and what they cost to employ. In large European countries, increases in the ratio of unemployment benefits to wages have hurt labour's prospects, probably against policymakers' intentions. (New Economist). Different factors have caused the labor share to decline in the Anglo-Saxon and European countries. In Europe, the share of labor has mainly been influenced by the immigration and offshoring whereas offshoring was not as important a factor in the Anglo-Saxon countries. Thus, for larger economies, immigration has been the critical factor contrary to small economies, for which, offshoring was the most critical factor. Alteration in the price of traded goods that has taken place in the recent years has also had an impact on the share of labor, though the impact was not as big. Hence, it can be said that although globalization has declined the import prices, thus minimizing the labor share, yet the corresponding reduction in the price of export has compensated for the loss. In fact, the effect of the latter has been more profound because of the capital intensive nature of exports of the advanced economies. Therefore, the labor share has faced an ultimate increase in these conditions. Effects of globalization on the labor in advanced economies: There has been a massive growth of the labor supply across borders all over the world in the past few years. Most of the labor that has moved belongs to the developing countries and moves over to the advanced economies in order to avail employment opportunities and raise their standard of living. Such a massive export of the emerging markets has definitely affected labor that is indigenous to the advanced countries. Most of the labor that is exported by the emerging markets is unskilled. Therefore, when the developing countries tend to integrate into the global economy, this has a negative impact on the wages of labor in the advanced economies as per the estimates of the traditional trade theory. Because of this, the labor’s share in the nation income which is conventionally known as the labor share can very much decline. The labor share is the “ratio of labor compensation per worker to average worker productivity” (IMF 166). However, the possible negative effect to the labor in advanced economies is balanced by the positive effects on the advanced economies generated by the enhanced productivity and trade. In other words, the increased productivity and trade enlarges the total “pie” from which the labor gains its share. (Lewer and Berg) have documented such gains from trade that speak of a substantial increase in the income of advanced economies. According to (Grossman and RossiHansberg), the effect of enhancement of productivity in the trade of intermediate goods can be more profound than that which results from the final product trading. It can be so said because the trade of intermediate goods plays a significant role in minimizing the cost of production of the sectors that use them in addition to the effect of competition for the sectors that produce them. Since the beginning of 1980, there has been a noticeable decrease in the labor share in the advanced economies. The decline in the share of labor is stronger as compared to that of the employees’ compensation. This reflects an overall reduction in the share of workers’ other categories which include but are not limited to family workers, employers and self-employed workers. Much of the decline since 1980 that has been observed in the labor share has occurred in European countries and Japan. The US and Anglo-Saxon countries have not had as severe an impact. Among all European countries, the decline has been the strongest in Ireland, Netherlands and Austria. Another factor that the decline in the share of labor can be easily attributed to is the reduction of unskilled sectors. Again, this reduction occurred more in Japan and Europe as compared to the Anglo-Saxon countries. However, in many Anglo-Saxon countries, there has occurred an overall increase in the income share of labor from the skilled sectors. Though, it is noteworthy that these results are pertinent to the share of incomes of labor in the unskilled and skilled sectors and not to the share of incomes of unskilled and skilled labor themselves. Although there has occurred an overall decrease in the labor share, the real compensation of labor has rapidly increased in most of the advanced economies. The increase started in 1980, though it accelerated only after 1990. The demand of indigenous people in the workplace is decreasing as more and more illegal immigrants are being employed by the business owners at lower pays. The indigenous labor is being heavily exploited by the foreign nationals that are pouring in their country in great numbers from the underdeveloped countries (International Labour Organization). Impacts of globalization on the economy of developed countries: There is no doubt in the fact that there has been a significant increase in the GDP of the developed countries as a result of the globalization of labor. However, this has resulted into the stagnation of economic mobility of many countries in the West. According to David Wessel from the popular Wall Street Journal, “Many Americans believe their country remains a land of unbounded opportunity…. Despite the widespread belief…economists and sociologists say that in recent decades the typical child starting out in poverty in continental Europe…has had a better chance at prosperity” (Wessel cited in ZetaBoards). The widening gap is causing an equivalent reduction in the consumer base. Effects of globalization of labor on developing countries: The UN Conference on Trade and Development has recorded an overall rise in the Gross Domestic Product (GDP) of the developing countries by an average of 52 per cent in the course of last 3 decades (Hardy). Many countries that used to have poor economy in the past and were considered as the third world countries like India, Brazil and Russia have started to acquire the status of the developed nations. According to UNCTAD, “sustained high growth in China, India…seems to have engendered synergy among developing countries so that growth in this group is more endogenous.” (Hardy). Impact of globalization of labor on the lifestyle of labor: However, this outcome of globalization is worth appreciating that it has increased the quality of life of the workers that has resulted from a decrease in inflation. The following figure depicts the changes that have occurred in the labor income as a result of an increase in the globalization. Changes in labor income with globalization (New Economist). The figure above shows that labor globalization has been extremely beneficial for the laborers in terms of an increase in their income. Although technological change is the biggest factor that is responsible for an increase in the income of laborers, yet labor globalization also has a significant share in improving the living standards of laborers all over the world. The figure also shows that the labor that has benefited the most comes from small European countries. General results of the globalization of labor: The lower share of labor causes the export prices to go up and the import prices to go down. The exports of advanced economies are largely capital intensive while the imports of such economies are fundamentally derived from the underdeveloped countries, and are largely labor intensive. The practices of immigration and the trends of offshoring negatively affect the share of labor. This fact is consistent with an increase in the labor supply globally that is obviating the need of the services of indigenous labor. The lower share of labor has lowered the unit costs of labor, which has in turn, left the offshoring not an attractive option for the domestic firms. Also, the foreign workers do not find immigration quite appealing. The effect of progress in technology on the share of labor is nonlinear. This can be attributed to the fact that workers are initially required to learn more in order to make the labor-saving innovations. Though, with the passage of time, as they do acquire the required skills, their output increases significantly. Among the policies, the rates of replacement of unemployment benefits and the higher tax wedges are the most dominant factors that encourage the labor share to be low. A lot of rigidities in the labor market stem as a result of such policies. Critical analysis of the globalization of labor: People have mixed views regarding the new Global Economy. A vast majority of the corporations visualize it as a means to cut down the costs while enhancing the business. On the other hand, labor has differing concerns with the matter. The new global economy is visualized by the labor as a tool to exploit the underdeveloped nations by reducing the quality of life of labor all over the world. In fact, both of these arguments are valid to some extent, as explored in the text below. Arguments from the proponents of globalization: According to (Hardy), four arguments are basically made by the proponents of globalization, which are as follows: 1. It is now possible for the corporations in the developed nations to produce cost effective goods and deliver services at cheap rates overseas 2. Globalization has made it possible for the developing countries to offer sustainable employment opportunities to their citizens 3. With the boom in globalization, productivity has increased and products are being made increasingly diverse in nature 4. Corporations are now in a position to expand their business along with facilitating the host nation. Arguments from the opponents of globalization: Like the proponents of globalization, its opponents also centre their arguments on four key points discussed below: 1. Outsourcing is essentially a compromise upon the strengths of indigenous labor, which reduces the buying power of the citizen of a nation in the long run 2. Application of the international labor standards is not equally effective and profound in the developing countries, thus their citizens do not benefit uniformly. 3. The individualistic requirements vary from nation to nation 4. Corporations can now freely escape their national responsibilities which has a detrimental effect on all nations. As a result of the globalization, there has been a flow of labor from the old industries to new industries. This transition has caused many workers to assume new roles and responsibilities that they are not quite competent in dealing with. A worker who used to be a steel fixer in the old industry is now serving as a nanotechnologist. In the present age of economic recession, jobs are not as high paying for the workers today as they used to be few years ago, firstly because of financial crisis, and secondly because of the lack of skilled workers. In a 2000 US Department of Labor press release, the Secretary of Labor, Alexis M. Herman said, “We don't have a worker shortage in this country, but we do have a skills shortage” (Hardy). Conclusion: Globalization has affected labor everywhere in the world (Palley). There is no doubt in the fact that globalization has caused an overall reduction in the share of labor in the gross output, yet the globalization has played a very important role in maximizing the global output in itself. This has been possible because of an increase in the productivity of labor and a corresponding decrease in the price of services and traded products. Therefore, labor is getting a small share from the total output, yet that is still bigger than what they used to get in the past. By making the imports cost effective, trade has been of big help to the labor. According to the result of a study conducted on 18 countries in total, the recent alteration in the trade prices has increased the average pay of a laborer by 0.24 per cent annually (New Economist). Works Cited: Grossman, Gene M., and Esteban Rossi-Hansberg. “The Rise of Offshoring: It’s Not Wine for Cloth Anymore.” Federal Reserve Bank of Kansas City symposium. 2006. Web. 5 Apr. 2011. . Hardy, Frank W. “Globalization is Worker Abuse: Is Labor Exploited or Aided by Corporate Outsourcing.” 24 Aug. 2007. Web. 4 Apr. 2011. . IMF. The Globalization of Labor. World Economic Outlook. Chapter 5. n.d. Web. 4 Apr. 2011. . “Labour Market Trends and Globalization's Impact on Them.” International Labour Organization. n.d. Web. 5 Apr. 2011. . Lewer, Joshua J., and Hendrik Van den Berg. “How Large Is International Trade’s Effect on Economic Growth?” Journal of Economic Surveys, Vol. 17 (2003): 363–96. Palley, Thomas I. “The Economics of Globalization: A Labor View.” n.d. Web. 5 Apr. 2011. . “The globalisation of labour.” New Economist. 5 Apr. 2007. Web. 4 Apr. 2011. . “WSJ - America not so great land of opportunity.” 13 May 2005. Web. 4 Apr. 2011. . Read More