Understanding and Responding to the
Labour Impact of Globalization
RIAL Workshop “Labour Dimension of Globalization”
Santo Domingo, Dominican Republic
27 July, 2010
Janine Berg
ILO-Brasilia
Guiding Questions for the
Panel
1.
What has been the impact of globalization on employment and
wages in the region?
2.
What are the key characteristics of a country that determine or
can anticipate these impacts?
3.
How can labour market institutions help in meeting the
challenges of globalization?
How is globalization
manifested?
Foreign Investment
Trade
Migration
Each one is affected by both internal and external factors and each
has an impact on the other.
World trade opening
(mean tarrifs %)
1980
1985
1990
1995
2000
2005
Change (p.p.)
1980-2005
East Asia and
the Pacific
31.9
24.3
25.2
24.8
13.2
9.0
-22.8
East Europe and
Central Asia
44.0
26.0
18.2
18.2
8.8
6.2
-37.8
Latin Am. & the
Caribbean
37.9
35.6
23.6
23.6
10.6
8.0
-30.0
Middle East &
N. Africa
25.1
20.5
22.9
22.9
22.4
11.7
-13.4
South Asia
63.0
62.9
57.9
57.9
25.1
14.9
-48.2
Sub-Saharan
Africa
28.3
28.7
25.2
25.2
14.1
12.7
-15.6
Total,
Developing
Countries
38.4
33.0
28.8
28.8
15.7
10.4
-28.0
Developing
Countries
13.7
9.5
10.5
10.5
6.7
5.4
-8.3
Source: McMillan & Verduzco, 2009.
Latin America: Index of Volume Traded,
2001 – 2009
(Index 2000=100)
200.0
Exportaciones
Importaciones
170.0
140.0
110.0
80.0
50.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: ILO, based on information from IMF, April 2010 and ECLAC. Information on Latin
America based on 18 countries
Note: a/ ECLAC forecast.
2009 a/
Trade and employment:
What does the theory tell us?
 Neoclassical theory tells us that free trade will lead to a shift in
production towards the more abundant factor.
 For developing countries, this factor is low-skilled labour (or natural
resources).
 The demand for the factor increases, and as a result, its price.
 In the case of low-skilled workers, the increase in demand will lead
to a reduction in the wage gap between high-skilled and low-skilled
workers.
But theory isn’t a good
guide…
“There is no area of economics where there is
a greater gap between orthodox theory and
actual problems than in the theory of
international trade.”
-- Joan Robinson, 1971
Why?
Because it depends on…
 The structure of the world economy (trade in tasks, trade
agreements, multinational policies, commodity prices)
 Conditions specific to the country (the exchange rate,
economic conditions, the cost of credit, the availability and
quality of infrastructure, tax laws, labour market institutions,
access to other markets)
What does the data tell us?
Evolution of industrial employment
Employment (1,000
workers)
East Asia & the
Pacific
1980
1985
1990
1995
2000
2005
26,834
32,635
59,527
64,747
55,254
69,356
24,390
29,743
53,040
58,255
44,927
59,353
Eastern Europe &
Central Asia
6,067
5,678
11,125
24,205
21,006
17,646
Latin America and
the Caribbean
9,605
10,374
8,297
7,525
8,598
9,438
Middle East &
North Africa
2,363
2,526
2,749
3,273
2,250
2,125
South Asia
7,866
7,671
9,236
10,986
8,928
8,180
Sub-Saharan Africa
2,653
2,427
2,539
2,915
1,764
1,531
Total, Developing
Countries
55,388
61,310
93,472
113,651
97,799
108,275
Developed
Countries
61,214
56,420
59,212
60,909
62,616
53,975
China
Source: McMillan & Verduzco, 2009.
And within Latin America?
Some stylized facts
•
In Mexico, Central America and the Caribbean, trade opening has increased
output and employment of labour-intensive goods, but traditional manufacturing
that had existed prior to liberalization suffered. Although there has been an
increase in manufacturing jobs, the new jobs pay less than the jobs in traditional
manufacturing. (Other sectors such as agriculture have suffered strong job
losses resulting in an increase in informality and international migration).
•
In South America, exports have concentrated in natural-resource-intensive
goods, whose production is typically capital intensive. The manufacturing sector
was negatively affected by import competition, causing a net loss in jobs and an
increase in informality. During 2003-2008, the increase in commodity prices and
a competitive exchange rate helped to strengthen the internal market and
develop national industries. There was an increase in formality rates in
Argentina and Brazil, buoyed by policies that increased the value of the
minimum wage and strengthened the internal market.
Increase in Informality in Latin
America
Informality (%)
(PREALC definition)
1990
42.8
1995
46.1
2000
46.9
2005
48.8
2008
46.2
Source: ILO, Labour Overview, several years.
Urban unemployment, Latin
America Latina and the
Caribbean, 2000-2009
12
11
11.4
11.4
10.5
10.5
10.4
10
9.2
9
8.8
8.1
8
8.5
7.5
7
6
5
4
2000
2001 2002
2003
Source: ILO, Labour Overview, 2009.
2004 2005
2006
2007 2008 2009*
Responding to the impacts of
globalization
Different areas to address
 Monetary and exchange rate policy
 Industrial policy
 Labour market policies and institutions
 Tax and redistribution policies
There is a need to protect
workers, but how should it be
done?
• Public policies specifically designed for workers affected
by trade
– US: “Trade Adjustment Assistance” Programme (TAA)
– Wage subsidies for displaced workers above the age of 50
(France, Germany)
• Traditional labour market policies, both passive as well
as active
Spending on Labour Market Policies
(% GDP): The Americas compared
with Europe
6.0
5.0
4.9
4.4 4.3
4.0
3.0
2.0
1.0
0.0
Source: OECD, IDB.
3.0 3.0
2.5
1.9 1.8
1.0
0.8 0.6
0.5 0.5 0.4
0.2
Active Labour Market Policies as an
Automatic Stabilizer
Job shedding
Job creation
Direct employment
creation programmes
Source: Based on Quiggin (2001).
Subsidies for
hiring
Training
But there is also a need for
unemployment insurance
18
Number of Countries
16
14
17
12
10
13
8
6
4
4
2
0
1
0
969 - 3940 3941 - 6912 6913 - 9883 9883 -12855
International Geary Khamis dollars, 1990
Source: Berg and Salerno (2008).
>12855
The importance of the State
To benefit from globalization, a stronger State is
needed.
 Investing in physical infrastructure, improving the
educational system, professional training, and social
protection systems (unemployment insurance, pensions,
health care), requires the collection of taxes. The tax
systems should be made progressive.
The importance of tax policy
 With the exception of Brasil, tax collection on the part of
Latin American governments is very low.