Economic Consequences of Globalization in European Countries and the Rest of the World - Research Proposal Example

Research Skills for Economists - Economic Consequences of Globalization in European Countries and the Rest of the World - Table of Contents I. Research Proposal ……………………………………………………. 3 II. Research Question or Main Hypothesis ………………………………. 3 III. Methodology …………………………………………………………. 3 IV. Area and Context of Research ………………………………………... 4 V. Key Literature ………………………………………………………… 4 a. Strategic Interaction among EU Governments in Active Labor Market Policy-making: Subsidiarity and Policy Coordination Under the European Employment Strategy …………………... 4 b. Labour Market Flexibility and Decent Work ……………….. 5 c. Globalization and the Distribution of Income: The Economic Arguments …………………………………… 8 VI. Conclusions …………………………………………………………… 9 References ……………………………………………………………….......... 10 Research Proposal: “Economic Consequences of Globalization in European Countries and the Rest of the World” Research Question or Main Hypothesis Globalization is said to helpful to the economy because it widens the opportunity for local businesses to access low-cost yet high quality raw materials. It is also said that globalization can make the costs of labor cheaper since it increases the availability of manpower supply. Many people have concluded that globalization, as the main business trend today, will help in the improvement of a country’s economy. Does globalization affect the outcome of labour market in European Countries? Are there any local labor market policies or programmes implemented by the European governments in order to minimize the effect of globalization on employment opportunity? How effective is the labor market policy or programme in preventing a sudden increase in the unemployment rate despite the globalization? Lastly, how does globalization affect the distribution of Income in general? Methodology To be able to answer the research question, this paper will include several literatures that are categorized as economic journals. With the use of HighWire – for journals, google and yahoo search engines, it is possible to answer the main question or hypothesis of the topic research. Economics journal coming from Journal of Industrial Relations (JIR), European Union Politics, and Inaugural Article Economic Sciences will be used in addressing the research questions and eventually derive the conclusion from the related literature that was gathered from the research activity. Area and Context of Research This paper will discuss several external factors that could affect the flexibility of a work market. External factors such as employment protection, wage flexibility, internal or functional flexibility, and the supply side flexibility will be explained one by one in the literature portion. Knowing which of these factors contributes more on increasing the unemployment rate as well as being able to determine whether globalization has a positive or negative influence to the employment rate will make it easier for us to manage, control, and avoid high unemployment rate in the European countries. Also, through an intensive research, we will be able to answer the question on how globalization could affect the distribution of Income in general. In line with this topic, the research will focus on determining whether people in general is economically better off as part the effect of globalization or not. Unequal distribution of income is another way of telling us that the gap between the rich and the poor is becoming wider. This is also true in the case of a third world and a developed country. Key Literature Strategic Interaction among EU Governments in Active Labor Market Policy-making: Subsidiarity and Policy Coordination under the European Employment Strategy European Union has committed in becoming one of ‘the most competitive and dynamic knowledge-based economy in the world by 2010.’ (European Council, 2000:1) In order to achieve this goal, Europe developed a policy called the Active Labour Market (ALM) program which will help improve and widen the opportunity of the local citizens who are looking for a prospective job. This program has been implemented under the European Employment Strategy (EES). (Franzese and Hays, 2006) The success of the ALM will result to the increase in productivity and earnings of the workers. European government is spending a part of the taxes on improving the public employment by providing necessary labor market training and implementing some policies that could promote employment to those who are unemployed. Because of the highly competitive working environment which partly resulted from the globalization, the goal of ALM was changed. They realized that they should focus more on increasing the adaptability of the workers within the changing working environment and conditions as well as attracting more people to join the labor market despite the tough competition. The ALM program also highlighted the promotion of more investment in human capital. (European Commission Communication, 2004) Using economic regression tests on several variables like GDP, politics, etc., the result shows that the unemployment rate in one geographic region can affect the unemployment rate in its nearby places. (Franzese and Hays, 2006) Evidences that the ALM program is effective in keeping the unemployment rate relatively low in European country are noticeable. Using a spatial test, the study shows that strategic interaction between the European governments with regards to the ALM policy-making is possible. Therefore, to keep the cost of ALM successful, the national governments should create strategic incentives to free ride on the ALM policies with its neighboring states. Labour Market Flexibility and Decent Work Flexibility of labour market is defined as the ability of employees and employers to adapt and respond to changes in the working environment of a country. (Rubery and Grimshaw, 2003) In 1980s, debates on the flexibility of the labour market became very popular. Because of the continuous changes in the trend of labour market, many groups such as OECD, IMF and the World Bank including other international organizations have been conducting studies with regards to the factors that affect the labour market. (Rodgers, 2006) Many of them have concluded that it is important for people to become knowledgeable of certain issues with regards to the labour market flexibility in order to survive. It is said that the existing globalization and constantly changing of the work environment and conditions have caused many changes in the traditional way of doing business. The continuously changing views on the labour market flexibility have something to do with the changes in the growth and development model. Based on the Keynesian belief, technical changes and aggregate demand are two related factors that affect the drive of production growth, the labour market institutions and regulations which in the end also reflect a social compromise among the local citizens. (Rodgers, 2006) All these changes are necessary in order to maintain the economic growth and development of a country. It was up to the early 1970s when the Keynesian theory was changed into a monetarists’ point of view. (Rodgers, 2006) This only proves that everything is subject to change over a certain period of time. Because of today’s competitive environment, employers always look and hire flexible workers than those who stick with the traditional way of working. According to the World Bank surveys that was conducted in many countries, around 34 – 38% of the companies reported that employment protection legislation has become a moderate or major obstacle for them. On the other hand, employees are often skeptical with the idea of flexibility at work. Among the external factors that directly affect the flexibility of work market include the employment protection, wage flexibility, internal or functional flexibility, and the supply side flexibility. (Wilthagen et al., 2003) The employment protection reduces the hiring and firing of employees. This limits a company’s ability to adjust with the changing business trend. According to OECD, the level of employment protection varies from one country to another. The wage flexibility also depends on the minimum wage regulation. Sometimes, a bargaining with trade union activists is unavoidable. The internal or functional flexibility depends on how a company could organize and restructure the internal business processes such as production and labour according to the changes that may occur. Lastly, the supply side flexibility pertains to the demand of workers with regards to the flexibility of their working time or permits them to have two or more jobs at the same time in order for them to survive. Based on the study, there is a weak relationship between the employment protection and aggregate employment or unemployment. According to Baker et al., the relationship between employment protection and unemployment is not significant. (Baker et al., 2005) On the other hand, OECD Employment Outlook 2004 made a remark that employment protection does not clearly result to a higher unemployment rate even though it is highly associated with the lower employment rates. (OECD, 2004) It changes the distribution of employment in the sense that some employers would prefer to hire young employees with less experience or some would prefer hiring men than women and young adults. The wage flexibility also shows a little evidence that imposing a minimum wage would affect the unemployment rate. The study also mentioned that the functional and organizational flexibility within each company is more important than labour market flexibility. Rodgers added that the increasing global production is the major factor that affects unemployment rate because it by-passes the national policies written in the labour code of any country. (Rodgers, 2006) According to Auer et al., it is the certain length of employment which causes a positive effect on the productivity of a company. (Auer et al., 2006) Therefore, job trainings are important in the increase in production. Auer et al. also concluded that the length of stay within a company correlates with the employment rates negatively. Globalization and the Distribution of Income: The Economic Arguments Globalization has a lot of effects to the world trade including the changes in technology and a country’s internal distribution of income particularly on the skilled workers and the unskilled workers. (Jones, 2003) The increase in world competition results to the improvement of new technology. This is one factor that widens the gap between the employed skill and unskilled workers. Most of the finished products now a day are being produced with the use of a machine. This is one big factor why there is a very high unemployment rate in many countries lately. The use of technological improvements also reduces the demand for skilled labor. The use of computers and information system is also the main cause in the reduced demand for skilled workers. The relationship between the use of these technologies and its effect on the prices of commodities as well as the employment of skilled and unskilled workers were carefully studied. As a result, economists have concluded that globalization has a huge effect on the distribution of income. Prior to globalization, those unskilled workers or the less educated ones could get more power to demand or negotiate for an increase in wages through a labour union. (Jones, 2003) Today, because of the highly competitive world market, this can not be possible because it will kill local business in the long run. For this reason, employers or business people have come up with new strategies on how to limit and avoid labor unions. According to Peter Neary, the increase in the international competition in oligopolistic industries has resulted to a wider allocation of resources to do research and development projects. (Neary, 2002) Therefore, it is the skilled workers who are much better off with globalization. It is the uneducated workers who are at the losing end. Conclusions The researched literature answers all the questions or main hypothesis. The literature under the title ‘Labour Market Flexibility and Decent Work’ and ‘Globalization and the Distribution of Income: The Economic Arguments’ tells us that globalization has a big effect the outcome of labour market in European Countries. The literature entitled ‘Strategic Interaction among EU Governments in Active Labor Market Policy-making: Subsidiarity and Policy Coordination under the European Employment Strategy’ discussed about the Active Labour Market (ALM) – a local labor market policy or programme that was implemented by the European governments in order to minimize the effect of globalization on employment opportunity. According to Franzese and Hays (2006), evidences that the ALM program is effective in keeping the unemployment rate relatively low in European country are noticeable. Lastly, ‘Globalization and the Distribution of Income: The Economic Arguments’ explained how globalization affects the distribution of Income in general. *** End *** References: 1 Baker D. et al. (2005) ‘Labor market institutions and unemployment: Assessment of the cross-country Evidence’ Retrieved: April 1, 2007 < http://www.economics.ox.ac.uk/ > 2 European Commission Communication (2004) ‘Strengthening the Implementation of the European Employment Strategy’ 239 final of April 7, 2004 Retrieved: April 1, 2007 < http://ec.europa.eu/ > 3 European Council (2000:1) ‘Presidency Conclusions – Brussels European Council’ Brussels: Council of Ministers. December 8, 2004 Retrieved: April 1, 2007 < http://ue.eu.int/ > 4 Franzese R. and Hays J. (2006) ‘Strategic Interaction Among EU Governments in Active Labor Market Policy-Making: Subsidiary and Policy Coordination under the European Employment Strategy’ European Union Politics. Vol.7(2): 167-189 Retrieved: April 1, 2007 < http://www-personal.umich.edu/ > 5 Jones R. (2003) ‘Globalization and the Distribution of Income: The Economic Arguments’ Inaugural Article Economic Sciences. Volume 100, No.19:11158- 11162. Retrieved: April 1, 2007 < http://www.pnas.org/ > 6 Neary J. (2002) ‘Trade, Investment, Migration and Labour Market Adjustment’ Eds. Greenaway D., Upward R. & Wakelin K. Macmillan, London. 7 OECD (2004) ‘Employment Outlook’ Retrieved: April 1, 2007 < http://www.oecd.org/ > 8 Rodgers G. (2006) ‘Labour Market Flexibility and Decent Work’ May 8-9, 2006 Retrieved: April 1, 2007 < http://www.un.org/ > 9 Wilthagen T. et al. (2003) ‘Towards ‘Flexicurity’?: Balancing Flexibility and Security in EU Member States’ Invited paper prepared for the 13th World Congress of the International Industrial Relations Association (IIRA), Berlin, September 2003. Retrieved: April 1, 2007 < http://www.tilburguniversity.nl/ > Further Readings: Auer, P (2006) ‘Protected Mobility for Employment and Decent Work: Labour Market Security in a Globalized World’ Journal of Industrial Relations. Volume 48, Number 1 February 2006 Rubery, J and Grimshaw D (2003) ‘The Organization of Employment: An International Perspective’ London, Palgrave Read More