Advantages and Disadvantages of Opening Labor Markets on Global Scale - Research Paper Example

Advantages and Disadvantages of Opening Labor Markets on Global Scale Name: Instructor: Task: Date: Introduction Globalization is a common topic that has been discussed by trade unions for various reasons. It is apparent that the element of globalization exists in different forms which are said to be controlling and major contributing factor to the improvement of individual national economies. Such economies alongside international economies are componential parts that constitute the global economy. A global model which is favorable to neoclassic ideology as well as promotes international capital markets does not necessarily have to be supported by labour unions. However, a concern that has been raised over the recent decades is the relationship between labour markets and globalization and the effects each has on the other. Research on the same has been conducted and various literatures published that has touched base on this relationship. 1.0 Trade Policy Reforms The first major component of policy reforms concerns trade which has positively influenced the reduction of both inequality and poverty relating to labor . To arrive to this conclusion, there are several theories which have been evaluated. Firstly, the theory of Stoler-Samuelson and Hecksher-Ohlin focus on the issue of belief in trade liberalization that basically has returned the factor of productivity of labour (Slaughter,2002: 56). This is especially in developing countries that have been struggling with poverty. Returns in productivity means there is generation of capital which is rare in these nations. Trade liberalization reforms play a crucial role in the lowering of inequality in selection of foreign labor. Assertions on the same have been observed in various literatures suggesting that reforms on trade liberalization have influenced international development and trade especially if it concerns free labor markets. The lowering of inequality is reliant of several factors which have been considered to be rather empirically invalid though prompting a necessity to evaluate them. One of the factors is the type of economic sector the developing nations thrives on (Attanasio, Goldberg and Pavnick 2002: 78). For instance, in developing countries that rely on agriculture, the workers and small farmers have likelihood to benefit from trade barriers which suppress the prices of produced agricultural products and raising those that are non-agricultural. The second component that has driven the belief of labor globalization is owed to the past means of protecting both the politically endowed and less privileged nations. This is known as the protection of labor aristocracy which simply means that there is provision of formal employment to those that are privileged enough (Slaughter, 2002: 90). This brings in the issue of an unbalanced scale in the protection of labour aristocracy especially to unskilled workers. This is because they have to pay more to secure this form of protection and yet are faced with the issue of limited employment opportunities which render securing jobs an uphill task. Such observations have been made on sectors that require skilled and capital labour. Despite the unbalanced scale with regards to protectionism, it is important to note that trade liberalization has also raised the basic income of low skilled workers in major sectors which is an advantage (Acemoglu, 2001: 34). This has a direct effect on the wages and employment. This is based on the notions presented by economists who argue that the sustained increased in income is a likely solution to the poverty that plagues the developing nations (Bladwin, 1995: 56). Eradicating or rather lowering poverty directly influences the acceleration of wage margins as well as increasing employment opportunities for job seekers. It is evident that labor market globalization has had a positive impact on both employment and wage. This can be supported through the various studies that have conducted recently especially in developing countries. The studies focus on wage premiums and labor markets surveys. Discussing these studies will shed more light in determining the extent to which it has had on the aforementioned elements. One of the studies conducted was done in Mexico and it focused on wage premiums. The findings illustrated that labor market external integration has continuously increased wage inequality between the unskilled and skilled workers. This trend was kick started following the trade reforms that were enacted in the 1980’s. According to Slaughter, Mexico experienced a sharp hike following a year after the reforms were enacted. This was after two decades of consistent declines in this sector. The same trend was observed in labor markets in Columbia following the drastic transformation of tariffs. Experts reiterate the same impact was experienced in Brazil as well as Latin America nationals following liberalization of trade 2.0 Capital Market Reforms Understanding how the policy reforms facilitate the promotion of foreign investment of the labor markets is imperative in establishing comprehension of the effects they have had on these markets. The investment on labor market by foreign investors is a major driver in provision of resources that can be utilized to generate further employment opportunities (Diwan, 2001: 156). It has also had the potential of bringing out the best attribute from the work force such as improvement in expertise and skills which directly influence the overall wage margins in the labor market. Such a positive impact is acknowledgeable though there are concerns which arise during the analysis of the extent to which foreign investment which is facilitated by globalization has on the provision of the aforementioned resources (Diwan, 2001: 158). A comparison between the low income and high income nations with regards to the impact of foreign investment illustrates that it accounts for 1% of GPD as compared to the 4% in high income nations (Diwan, 2001: 157). The major issue of concern is the size of the populous that receives this foreign investment in the low income countries. According to a study carried out, the majority of this contribution is directed to only a small number of recipients and has been motivated by two main aspects. They include the need to generate cross-border mergers as well as acquisitions as opposed to the conventional new investment. Another advantage of the labor market on a global scale is the resultant capital flow. According to the conventional theory, overwhelming emphasis has been placed on the likelihood that it capital flows poses a likelihood of increasing employment (Feentsra and Hanson, 1997: 94). This is with special inclination to areas which are capital intensive. The crippling factor to this aspect is that the lowly skilled grouping of the workforce is subjected to fewer opportunities with regards to employment opportunities. According to Feenstra and Hanson, there are a couple issues which play a role in influencing capital flow through relocating activities within a particular margin. They include the outsourcing labour as well as FDI (1997: 105). The resulting effect of this relocation of labour includes reduction in the demand of labour either skilled or unskilled. Such a reduction plays an important role in the development of the overall economy that is participating in the relocation. The movement of activities such as skilled labour workforce and unskilled labour from developed and developing countries ensures that there is a rise in skill levels in both nations thus increasing productivity, improving the economy and also trying to equalize the inequality in wages which is inevitable in developing nations. Relocation of activities provides the foreign employers to take advantage which can also present as a disadvantage to the workers. This is because they are presented with the opportunity to bargain wages thus might create the issue of wage reduction (Diwan, 2001: 160). Owing to this, potential threats are made available though this is majorly restricted to an industry which often poses a moderate capital intensity level. Despite the threat posed, this bargaining can actually be beneficial in terms of facilitating mobility of capital especially in nations which are moderate income earners. The same applies to developed nations thus it is evident to conclude that capital flow can either have advantageous aspects or disadvantageous effects depending on the balance established in the labour market and the capital mobility. 3.0 Labour Market Reforms The evaluation of labour market reforms is imperative in the research mainly because of its irrefutable connection to globalization. This connection has been established on two forms. Firstly, for there to be a greater external integration with regards to labor market into the global scene, labor reforms in developing countries are elements which include providing liberal forms of capital markets and trade policies. Owing to the aforementioned findings, it is valid to state that these reforms are the force driving the labor market into a global economy. Another main reason why these reforms are important is because their features often determine the extent at which the effects of globalization will be felt within the economy of respective participating nations. A major advantage presented by labor market reforms is providing attractive incentives that act to lure potential foreign capital ( Das and Mohapatra, 2002: 66). This factor allows to the local economy of the labor producing economy to optimally adjust to these reforms as well as have an upper hand in enjoying the perks of trade which are connoted with the aspect of labor market liberalization. Secondly, labor market reforms allow for flexibility within the market. This is especially with regards to its integration within the internal sector. Based on the findings of a recent study, it was observed that flexibility in the labor market from a global perspective has been a contributing factor is the loss of the formal sector of employment. This has led to individuals going for longer periods without any means of employments and the downward movement in capital flow. All these effects have a greater impact in developing economies. Such findings raise the concern on the componential parts of such reforms which in most cases are recommended for the participating developing economies (Harrison and Learner, 1997: 54). An example of such impact is evident from the case study done by Macmillan, Rodrik and Welch on the displacement of Mozambique workers working in the cashew sector (2002: 38). According to the case study, due to sector privatization and labor market reforms, most of the workers found themselves unemployed, languishing in the jobless pool with most of them being female. Another exemplary incident was observed in India where the textile mills were completely shut down due to the downward mobility of capital which results depending on the nature of labor reforms being implemented. Lastly, institutional factors are major key players in determining the impact of globalization on the labor markets. Some of these factors include the ability to collectively form into workplace entities and also in bargaining. The opinions presented by economy experts suggest that the aforementioned activities are often viewed as having a crippling effect in attracting foreign investment and impede the need for competiveness on an international scale. However, they also reiterate that these claims are rather misplaced and not clearly determined through analysis of the global economy. Asides the negative notions presented, there are several advantages that are presented by this collectivism. Firstly, it presents overall organization in the labor market which facilitates improvement in the technological sector thereby giving the involved parties a higher advantage in the global market (Slaughter, 2002: 21). A factor that results from collective organization is problem solving ideologies that help in acquiring the mentioned advantage. Secondly, it allows for enactment of widespread salary increment by the involved organizations. Such an activity present individual employers with a solution to the risk of investing in employee productivity and failed resulting returns. Thus it is evident that through wage increase reforms enacted by organization, the profits gained are directed towards both the employer and employee thus proper distribution of profits and improvement of the economy. In conclusion, the introduction of the labor market to the global economy present disadvantages and advantages which are divided into three subsections. They include labor market reforms, Capital Market Reforms and Trade policy reforms. Based on the research studies conducted, these reforms have had a direct influence on the impact globalization will have on labor markets. However, it is valid to state that opening the labor market into a global scene will have great positive impact for both foreign and local labor as well as the developing and developed nations partaking in the trade. Thus it is important for such an endeavor to be explored to determine its full potential. References Acemoglu, D. (2001), “Technical Change, Inequality and the Labour Market”, manuscript. Attanasio, O., P. Goldberg, and N. Pavnick (2002). “Trade Reforms and Wage Inequality In Columbia”, Draft Prepared for the 2002 IMF Conference on Macroeconomic Policies and Poverty Reduction, Processed. Bladwin, R. (1995), “ The Effect of Trade and Foreign Direct Investment on Employment and Relative Wages”,NBER Working Paper No. 5037. Das, M. and S. Mohapatra (2002), “ Income Inequality: The Aftermath of Stock Liberalization in Emerging Markets”, Dept. of Economiics, Columbia Univeristy, Discussion Paper No. 0102-42. Diwan, I. (2001), “Debt as Sweat: Labour, Financial Crises, and the Globalization of Capital”’, The World Bank; Washington D.C, Processed. Feentsra, R. and G. Hanson (1997), “Foreign Direct Investment and Relative Wages Evidence from Mexixo’s Maquiladoras”, Journal of International Economics Vol. 42. Harrison, A. and E. Learner (1997), “ Labor Markets in Developing Countries: An Agenda for Research” , Journal of Labour Economics, Vol. 15 No. 3. McMillan, M., D. Rodrik and K. Welch (2002), “ When Economic Reform Goes Wrong: Cashews In Mozambique”, NBER Working Paper 9117. Slaughter, M. (2002), “ Trade and Labour-Market Outcomes: What About Developing Countries?” Dartmouth College, processed. Read More