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Globalization and Employment

The Effects of Globalization on Employment
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  Globalization and Employment Globalization and Income Distribution: From the Lecture “Globalization and  Employment” by Jeffrey Sachs, Geneva, March 1996  First, I would like to reiterate my belief that globalization will lead to higher overallgrowth rates for almost all economies and that there will not be a trade-off between faster growth for some and slower growth for others. Where distributional problems arise they arewithin income classes or between different skill levels but not between economies whichgrow more or less rapidly as result of the international economy, with obvious exceptions of countries that are disadvantaged by poor structures. For example, special measures would beneeded to assist the poorest landlocked countries which do not have an objectively difficulttime keeping up with world economic growth. On the whole, however, the developingcountries have a good chance of achieving convergent growth rates. In addition, if thedeveloped countries called the right policies, that is if they have flexibility, moderate rates of taxation and the like-something which is eluding most of Western Europe right now-theymight also benefit from global economy by being able to export their differentiated hightechnology products to a much larger world market. In sum, the issue of distribution centres,not on whether some countries gained and others lose, but rather on income distributionwithin societies. This is my first point.My second point concerns the division of income between capital and labor. I wouldguess that the post tax income, of capital is privileged relative to the post tax income of labor as a result of globalization and especially globalization that leads to openness of financialmarkets and not just of trade. For example, both the evidence and the theoretical logic tomake it quite clear that union wage premia are driven down by the openness of the worldfinancial system and that the ability of capital to move offshore really does pose limits on the1  Globalization and Employment wage-setting or wage-bargaining strategies of trade unions which are restrained in their wagedemands by the higher elasticity of labor demand. Similarly, I think that, overtime, theevidence would show that the burden of taxation falls increasingly on labor and less and lesson capitol as a result of these changes given that taxation inevitably falls on the fixed factor and is, as inevitably, escaped by the highly mobile factor. At the end of the day, the fact thatlabor cannot move into the low capital income taxation countries suggests that we will find inimplicitly, both in terms of the incidence, and in terms of choice of tax system, a movementtowards a heavier burden on labor taxation and away from capitol taxation and taxation of factor incomes. Capital can still be taxed, not directly as a tax on capital, but indirectlythrough a tax on overall income or consumption. For example, movements towards progressive consumption taxation may be constant and other mechanisms to tax capitalincome, if I am correct in assuming that the burden of the corporate income taxation is likelyto diminish given the increased ability of the capital to escape taxation through internationalmobility. This is purely conjectural because the data has yet to be closely examined, but isnot inconsistent with existing evidence. It is also true, I hasten that add, that the directevidence of income going to capital as against labor in the national accounts shows modest,rather than large, shifts in the direction of the share of labor falling and that of capital rising.My guess is that if one were to look at post tax capital and labor income, one would find thistrend even more strongly evident in the data.The third distributional shift is within labor itself, between skilled and unskilledworkers. Economic theory suggests that increased globalization will lower the relative wageof unskilled labor in the advanced countries and raise their relative wage of unskilled labor inthe developing countries when these two groups began to trade with each other after a period2  Globalization and Employment of autarky. This is the famous Stoker-Samuelson theorem, or rather an implication of it, or more correctly, of so-called factor price equalization. We now find ourselves in a very oddsituation with respect to this most standard and central of all economic theories in that manyof the leading theorists who propound it doubt that it is actually applicable to presentcircumstances. I have my doubts about their doubts. After studying international tradetheory, including factor price equalization, with Professor Bhagwathi, I confess that I cannot just dismiss it. Although he contends that it does not apply at all to the international scene,my own feeling is that it does.To begin, let me mention quickly the major caveat to the theory. If the developed andthe developing countries have such unequal endowments-so much skilled labor in theadvanced countries and so much unskilled labor in the developing countries-that theyactually specialized, then factor price equalization cannot follow. Indeed, and set cases of specialization, being outside the cone of factor price equalization would mean that theincreased export capacity of the developing countries would simply raise all incomes in thedeveloped countries by bringing in the goods in question more cheaply. Thus, in terms of trade, the rich countries would enjoy an improvement that was a pure consumer gain for everyone. Globalization and Labor Standards I feel that if we are to respond to the developments as I described earlier we mustlook to better tax systems, or zero tax systems and other mechanisms, but not to (and here Iknow I use a loaded phrase) imposing minimum conditions of work or even institutionalstrategies for collective bargaining on developing countries. In my opinion the cost of such3  Globalization and Employment conditions and strategies could be quite substantial for the developing countries and bringmodest, if any, gains to the advanced countries.This being said, I would like to stress that there should not be any argument about theso-called core human standards, or core labor standards, if we could agree exactly on whatconstitutes such a core. There must, indeed, the core conventions that are very strong,closely monitored and taken quite seriously on such issues as slavery and other forms of involuntary servitude or coercive labor, especially coercive child labor, on freedom of association, freedom to bargain, and the like. However, I would draw the line at dictating theinstitutional details in these standards, particularly on such issues as the nature of our  bargaining structure, and so forth. Their basic strategy should be comfortable for all becausethey really are the underpinnings of free societies. I do not think these standards areideologically loaded between the left and right and, as believers in individual liberties andfreedoms, trade economists should be able to accept them just as much as everyone else.Where many of them demur is on other kinds of labor standards such as minimum wages,conditions of work, hire and fire terms, industrial relations systems, the nature of collective bargaining, and the like. Globalization, Wages, Jobs and Myths: b    y Gerard Jackson In the present we find that opposition to globalization invariably turns out to really be opposition to free markets. Overall, the kind of changes leveled against the alleged evilsof globalization turn out on closer examination to be no different from those leveled againstthe free market. In other words, attacks on globalization are really masking attacks oncapitalism. In the words of Bob SantaMaria, one of Australia’s most prominentinterventionists and monetary cranks, Capitalism is the real enemy . Geoffrey Barker is4
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