GLOBALIZATION AND ITS IMPACT ON LABOUR, INDUSTRY AND COMMERCE ANDTHEIR RESPONSE TO GLOBALIZATION HESKETH A. WILLIAMS ELTONIA A.

ROJAS 02.11 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) EPA

LABOUR POSITVE 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) EPA ncreased demand for skilled workers and decreased demand for less-skilled workers. Increased technology and communications facilitates higher education. Ease of travel allows labour to compete on an international scale. Decentralization of labour market to industry hubs.

POSITVE IMPACTS OF GLOBALIZATION ON LABOUR 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 skillintensive industries rather than in unskilled-labor-intensive.

NEGATIVE IMPACTS OF GLOBALIZATION ON LABOUR 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 lessskilled 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.

(Matthew J. Slaughter and Phillip Swagel)

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 locationsa 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. IMPACT OF GLOBALIZATION ON INDUSTRY

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.

IMPACT OF GLOBALIZATION ON INDUSTRY 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.

IMPACT OF GLOBALIZATION ON INDUSTRY 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. IMPACT OF GLOBALIZATION ON COMMERCE 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.

IMPACT OF GLOBALIZATION ON COMMERCE 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 unskilled-labor-intensive products.

RESPONSES RESPONSE OF LABOUR TO GLOBALIZATION Decentralization of labour market to industry hubs. Persisting large cross-country differences. Reductions in the tax wedge. Deregulation of product markets

RESPONSE OF INDUSTRY TO GLOBALIZATION 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. RESPONSE OF COMMERCE TO GLOBALIZATION 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

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