Globalization, the interconnectedness of economies and cultures worldwide, has profoundly reshaped the landscape of labour laws. As economies integrate and borders blur, the relationship between globalization and labour laws becomes increasingly intricate, posing challenges and opportunities for workers’ rights and legal frameworks.
The impact of globalization on labour markets has re-emerged as an important policy issue, reflecting the broader public debate about the interrelated concerns of downward pressure on wages, increased job insecurity, and jobs moving from OECD countries to developing countries with lower wages.
Two relatively recent phenomena are at play here. One is the accelerating participation in world trade of many developing and transition countries, particularly the large, vastly populated economies of China and India. These countries’ increased trade and foreign direct investment (FDI) have, according to IMF estimates contributed to a fourfold rise in the effective global labour force over the past two decades (IMF).
The second phenomenon is that the nature of globalization is changing. Technological advances, and particularly sharp reductions in communication and coordination costs, have allowed the emergence of global supply chains that are increasingly fragmented geographically (OECD). To feed these supply chains, international trade is increasingly in intermediate inputs rather than in final goods and services or commodities. Moreover, often these intermediate inputs are business services that were previously non-tradable but are now, with technological advances, tradable. This type of international trade, whether in services or other intermediate inputs, is referred to as offshoring. Here too China and India have been key players.
Globalization increases the urgency of implementing a comprehensive policy programmed to reap the associated benefits while addressing adjustment and distributional concerns. The IMF’s conclusions are similar: IMF states that policies should seek to improve the functioning of labour markets, strengthen access to education and training, and ensure adequate social safety nets that cushion the impact on those adversely affected without obstructing the process of adjustment.
The Globalizing World Economy and the Division of Labor:-
Following the standard international economic theory, we understand that an open international economy leads to the division of labour. Hence an opening up of borders allows Globalization and the Impact on Labor Markets. International trade allows the country to specialize in the intensive use of factors of production in which it is abundant. According to Oatley (2011), such a division of labour is occurring in the global economy where “each country produces goods in which it has a comparative advantage and sheds industries in which it has a comparative disadvantage.” Furthermore, there are four emerging tiers and these emerging tiers then have a consequent impact on the labour market.
Oatley’s (2011) study found the following:-
• The advanced industrialized countries hold a comparative advantage in capital and human capital-intensive good
• The Asian NICs, especially South Korea, Taiwan, Hong Kong and Singapore hold a comparative advantage in mature and standardized capital-intensive goods
• The second wave of NICs, including Indonesia, Malaysia, Thailand, Mexico and Argentina, holds a comparative advantage in labour-intensive goods such as apparel, footwear, and the assembly of finished goods from components.
• Other developing countries hold comparative advantages in land-intensive primary commodities such as fuel, minerals, and agricultural products.
Hahn and Narjoko (2011) in their study prepared for the Economic Research Institute for ASEAN and East Asia, provide us with a succinct definition of both globalization and labour markets. Hence, “Globalization in this study is broadly defined to include trade and foreign direct investment (FDI) liberalization, trade (exports and imports), international capital flows, outsourcing and traded intermediate goods while labour market outcomes are defined as wages and employment as well as volatility and dispersion of wages.”
Globalization and the Impact on Labour Markets:-
As mentioned earlier one of the main critiques of globalization has been the inequality of wages. Hahn and Narioko (2011) in their study utilize the two standard models of international trade, the Heckscher-Ohlin (H-O) theory and the Stolpher-Samuelson theorem to explain the two theories that have been put forward for this critique which are: trade and skilled biased technological progress. Hence, “International trade is expected to increase the relative wages of the skilled worker in a skilled-abundant country while decreasing it in a skill-scarce country. An alternative explanation is due to an increase in relative demand for skilled workers because of improvement in technology.” The consensus that has been derived from earlier studies is that technological progress rather than trade is the principal cause of the increase in inequality. This point is further elaborated on by Basu (2016) who asserts that” the deep global shifts that I am referring to here have to do with technological change and the resultant changes like the global markets.” Further analysis yields that wage inequality does not always occur as predicted by the HO model. Therefore, “While trade liberalization increases the wage inequality in skill-abundant developed countries and decreases it in skill-scarce developing countries, wage inequality in practice rises not only in developed countries but also in middle-income developing countries.”
The impact of globalization on labour markets is a multifaceted phenomenon that intertwines economic theory, trade dynamics, and technological advancements. As economies integrate into a globalized framework, the division of labour transforms, emphasizing each country’s comparative advantages. This restructuring of global economic activities has led to a redistribution of industries across different tiers of nations, influencing wages, employment patterns, and income inequality.
Critiques of globalization often highlight the widening wage gaps and job insecurities, attributing these shifts to trade liberalization and technological advancements. While theories such as the Heckscher-Ohlin model and skilled-biased technological progress provide frameworks for understanding these changes, it’s increasingly apparent that technological advancements play a more pivotal role in shaping global markets and driving inequality than trade alone.
The evolving nature of globalization, with its focus on fragmented supply chains and offshoring of services, demands a nuanced policy approach. Addressing the associated challenges involves not only fortifying labour markets and enhancing educational opportunities but also ensuring robust social safety nets to cushion the impacts of these changes on affected individuals and communities.