Labour Market Effects of Globalization

International economic integration has increased over the last decades, which has consequences for labor markets and will affect wages, employment and job turnover. Although international trade economists have devoted considerable resources in an effort to understand the relationship between globalization and labor market effects, we have until recently known surprisingly little about the micro-level effects of commercial policy on the labor market. We now know that globalization for instance increase inequality to a much larger extent than previously thought.

This presentation will start by discussing some of the explanations to the labour market effects of globalization. It is shown that competitive selection between firms with different characteristics is a channel through which globalization affects both within- and across-group inequality. Moreover, internationally engaged firms need to invest in various competences, including workers in various high skilled occupations. Finally, advances in information technologies has profound impacts on relative wages by allowing some tasks to be outsourced whereas others need to be performed in direct connection with the firm’s core activity.

We continue our discussion and contend that globalization is not a homogeneous process that affects all countries uniformly and that its effects on aggregate performance are shaped by structural as well as institutional characteristics of countries, among which the welfare state is prominent. The presentation ends with a discussion on the difficult role of economic policies in securing the benefits of globalization, and in the same time provide a safety net for workers who are hurt in the process.