The labour market is the arena within which income opportunities present themselves to individuals
We will study a detailed understanding of how globalization has impacted on various components of an economy’s labour market
The labour market, also known as the job market, relates to the supply and labour demand in which the supply is provided by the workers and demand by the employers. It is a significant component of any economy and is closely linked to the finance, commodities, and services market: Globalization certainly permits an increase in the level of global output.
The importance in studying the effects of globalization on the labour market
The importance in studying the effects of globalization on the labour market lies in the fact that earnings from labour represent the main source of income for the great majority of the inhabitants of developing nations and especially of the poorer groups of workers, who lack ownership of any other material assets.
The demarcation of pre and post globalization is before and after the year 1991.
Globalization means the speedup of movements and exchanges (of human beings, goods, and services, capital, technologies or cultural practices) all over the planet. One of the effects of globalization is that it promotes and increases interactions between different regions and populations around the Globe.Globalization can generally be defined as the integration of the world economics by removing barriers to trade and encouraging the free flow of foreign investment, private portfolio capital and labour across national boundaries. It has opened broader communication lines and attracted more companies as well as different organization into India. It assumes availing of more employment opportunities for both men and women workers in India. However, it would be challenging task for the companies to cope-up with existing labour laws and ensure activities promoting labour welfare to suite the emerging needs of contemporary labour force. Due to cutthroat competition in the market exploitation of labours is likely to increase. In this context so as to keep morale of the workforce high, various welfare measures to protect their interest are necessary as an important strategy. The aim or objective of welfare activities is partly humanitarian to enable workers to enjoy a fuller and richer life and partly economic to improve the efficiency of the workers and also partly civic to develop among them a sense of responsibility and dignity and thus make them worthy citizens of the nation
Economics was part of the foreign policy story. Narasimha Rao, who led the country from 1991 to 1996, took over the prime ministership when India’s economy was failing and its geopolitical position was at its weakest. 1991 was a tumultuous year in the global order. The Gulf War was raging, with the intervention of a global coalition led by the US, which launched Operation Desert Storm to push back Iraqi forces under the leadership of Saddam Hussein from Kuwait. In a matter of weeks, Iraq found itself in headlong retreat, ceding not just Kuwait but parts of its own territory. The US won decisively and imposed a harsh peace on the vanquished Saddam. But the conflict—between two countries responsible at the time for over 4.3 million barrels of oil a day—inevitably caused a dramatic shock to the global oil supply. The price of crude oil doubled overnight, triggering economic rifts within countries that found their oil import bills rise drastically, including India, which remains heavily dependent on oil imports for its energy needs.
► Negative effects occur as a result of large-scale technological developments that accompany this phenomenon, which will reduce the demand on unskilled labour
Even direct foreign investment does not care for cheap workers but only for highly skilled workers.
► The traditional nature of “work” might disappear due the rapid advances in technology, while at the same time creating new and innovative occupations in favour of the highly specialized professions.
► An increase in hidden unemployment, a lack of new job openings, and a deterioration of real wage rates are the consequences of globalization in most developing economies, which were unable to adapt the new technologies.
► Moreover if the labour clause, will be enforced through the WTO, this will have a negative impact on economic growth and employment in many developing countries, where child labour exists and where working conditions are miserable (Nassar,2003).
► Most trade liberalization benefits will be received by the manufacturing-producing countries, while the smallest share will be going to the agricultural-producing countries (developing countries).
► In addition policies of structural adjustment such as privatization imply an increase in unemployment since privatization is accompanied usually by a reduction in the demand for labor.
► Finally the theoretical predictions about the employment consequences of trade liberalization are based on assumptions of full employment of resources and flexible labour markets. These assumptions, might not hold true in developing countries where labour markets are inflexible due to structural factors.
Labour Laws in India have been enacted keeping in view the need for economic and industrial development of a country. Improvement of physical working conditions, establishment of industrial peace and harmony, provision of machineries for settlement of industrial disputes, ensuring workers participation in management, prohibition of unfair labour practices, restrictions on strikes and lock-outs, provision of social security benefits and welfare facilities, regulation of working hours have substantial bearing on the pace and extent of economic development. These aspects have been covered under various labour laws of India. Labour welfare activities and benefits are not restricted to worker and workplace but they are also extended to workers’ families. Labour welfare may be considered as “efforts to make life worth living for workmen”.4 According to the Labour Investigation Committee (1944-46), labour welfare activities include anything done for intellectual, physical, moral and economic betterment of the workers, whether by employees, by government or by other agencies, over and above what is laid down by law or what is normally expected or part of the contractual benefits for which the workers may have bargained”.5 International Labour Organization includes under the term labour welfare “such services, facilities and amenities which may be established in the vicinity of undertaking to enable the persons employed therein to perform their work in healthy and congenial surroundings and to provide them with amenities conducive to good health and good morals”.6 It means, the concept of labour welfare is dynamic and also relative.
There has been a dramatic increase in the size of the effective global labour force over the past two decades, with one measure suggesting it has risen fourfold. This expansion is expected to continue in the coming years. The UN projects a 40 percent rise in the world’s working-age population by 2050, and trade openness will continue to grow, especially in services. Indeed, tentative projections suggest that the effective global labour supply could more than double again by 2050.31 The global pool of labour can be accessed by advanced economies through imports and immigration. Trade is the more important and faster-expanding channel, in large part because immigration remains very restricted in many countries. But the integration of China, India, and the former Eastern bloc countries into the world economy has also expanded export markets for advanced economies. Contrary to popular perceptions, the intensity of offshoring of the production of intermediates is still small in the overall economy, although the manufacturing sector is more affected owing to its greater tradability. Imports of offshored intermediates have also been growing somewhat more slowly than total trade. The integration of workers from emerging market and developing countries into the global workforce has produced important benefits for advanced economies. It has provided access to cheaper imported goods and has enabled companies to operate more efficiently. This has boosted productivity and output, and contributed to rising real labour compensation. For emerging market economies, the ongoing integration of labour into the global marketplace has benefited workers, with manufacturing wages rising rapidly. Nevertheless, labour globalization has negatively affected the share of income accruing to labour in the advanced economies (the labour share). It is, however, only one of several factors that have affected the labour share over the past two decades. Rapid technological change— especially in the information and communications sectors—has had a bigger impact, particularly on the labour share in unskilled sectors. Against this background, the increasing globalization of labour raises important challenges for policymakers in the advanced economies. They must seek to harness the benefits that the growing pool of global labour is creating. This means continuing along the path of trade liberalization, while ensuring that domestic economies are sufficiently flexible to be able to adjust and respond to the pressures of globalization. At the same time, it is important to be fully cognizant of adjustment costs, and policies do need to support those people negatively affected by labour market globalization. In broad terms, policies need to respond along three dimensions: • Improve the functioning of labour markets. Steps to reduce tax wedges to enable workers to take home a larger proportion of their gross pay and to ensure that unemployment benefit replacement rates do not deter workers from seeking employment have helped a number of countries adjust to the pressures of globalization. The duration of unemployment benefits and the work availability requirements are also important (see Annett, 2006; and Bassanini and Duval, 2006). Moreover, policies that increase the flexibility of the economy and thereby enable workers to move more easily from declining to expanding areas of the economy help the process of adjustment. A variety of country-specific approaches are possible, as demonstrated by the range of experience of successful reformers in western Europe (see International Monetary Fund, 2007, Box 2.2 for a discussion of these experiences). Reform packages also have to be designed with fiscal consequences in mind. • Improve access to education and training. Developing workers’ skills is necessary for keeping up with rapid technological change and for continuing innovation. Skilled sectors have been better able to adapt to changing conditions caused by the ICT revolution than unskilled sectors. Further, countries that started adopting ICT and training workers in this area earlier experienced less decline in their labour share. Workers must also be ready to compete with the growing pool of skilled workers in emerging markets, especially those in Asia. Beyond increases in spending on education and training, the quality of this spending is crucial. Experience shows that evaluation and targeting of training are important to maximize its impact. • Ensure adequate social protection for workers during the adjustment period. This includes providing adequate income support to cushion, but not obstruct, the process of change, and also making health care less dependent on continued employment and increasing the portability of pension benefits in some countries, which would also enhance the flexibility of the economy by facilitating the move of workers from declining sectors to expanding sectors. Whether measures specifically targeted at workers who have been displaced by international trade are desirable is less clear (see, e.g., OECD, 2005). The fact that these workers may face special hurdles reintegrating into the labour market as they are often older and less educated and their skills are specific to declining industries or occupations argues in favour of such measures. Also, minimizing losses for such workers may increase support for the international economic integration process. However, it may be difficult (even conceptually) to differentiate between job losses caused by globalization and those caused by other factors, since most labour markets are characterized by high rates of turnover and year to-year earnings variability anyway. If trade-displaced workers are treated more generously, including, for instance, by being provided supplementary wage subsidies, such compensation should be structured to avoid dulling incentives to search actively for new jobs.
During the 1980s mass unemployment and growing wage inequality became a veritable scourge across much of the industrial world. These problems persisted in many countries during the 1990s. How they are dealt with will influence the future course of all economies, whether developed or developing, given their interdependence. Despite growing support for globalization, liberalization and outward-oriented development in the industrialized countries, labour market problems have been blamed on imports of manufactured products from the South. The solutions proposed range from erecting import barriers(“protectionism”), to imposing higher labour standards on southern producers (“social clause”), to lowering labour standards in the North (“flexible labour markets”). Each of these responses – including the third, favoured by advocates of free markets and minimum government – would slow the industrialization of developing countries without resolving the labour market problems in the North. While trade provides only a superficial explanation of unemployment and wage inequality, the same can also be said for the most popular alternative – technological change. Both factors have, indeed, tended to reduce the demand for unskilled labour in industrial countries. But dislocations of labour as a result of new competition or new technology are nothing new in economic history, and, besides, demand for skilled labour has also been weak in many countries. What, then, has made it so difficult for the labour displaced by structural change to find remunerative work elsewhere in the economy? The root of the problem lies in the slow pace at which demand, output and investment in most industrialized countries have been expanding over the past two decades. Even if labour is made less costly to employers and more skilled, business will invest on the scale required to provide more and better jobs only if it is confident of buoyant sales. The strong labour market performance of some industrial countries during the 1990s provides ample evidence that unemployment and growing wage inequality in the North do not have an international origin. Notably in the United States, but also in some smaller European economies, trade with the South has been consistent with achieving the goal of full employment.37 Moreover, the coincidence of full employment and “the new economy” based on information technology during the 1990s calls into question simple structural explanations of unemployment in the developed economies. With the obvious success of some countries in the North in reducing unemployment by demand management and high growth rates, the conventional policy approach needs to be reconsidered across the developed world if labour market security is again to become the norm for working people. The effective answer lies in appropriate macroeconomic policies to increase productive investment and expand employment. Under these conditions both trade and technology can reinforce a virtuous circle of economic growth, job creation and productivity gains. This will certainly require better policy coordination among the leading industrial economies along with more effective governance of international capital flows than has been the case since the collapse of the Bretton Woods system, and a better-managed exchange rate system among the G-3 currencies.38 20 With the resumption of rapid and sustained growth, full employment and opening of markets in industrial countries in areas of export interest to developing countries, the South would have a chance to tackle simultaneously its development challenges and its labour market problems. Such a strategy would mean “all-boats-afloat”; it would create jobs in the North while benefiting – not hurting – the South. At the same time it would remove the main threat to the liberalization of trade. This approach may seem politically out of reach. But any further deterioration of labour market conditions in the North could threaten social stability and lead to beggar-my-neighbour policies, exacerbating conflicts among nations, and jeopardizing the stability of the international trading system.
Improvement in labour market conditions will also require a reorientation of development policies at the national and global levels, particularly with respect to the speed and pattern of integration of developing countries into the global economy. Rapid and premature liberalization after the debt crisis of the 1980s, not underpinned by appropriate institutions and productive capacity, has been a source of steady deterioration in labour market conditions in many Latin American and African economies, frequently compounded by ineffective or misguided adjustment programmes. In Asia even countries with a history of strong output and employment growth fell victim to volatile capital flows and economic policy errors, with the burden of adjustment falling heavily on wages, employment and social conditions. Rapid financial liberalization, in many cases representing a reversal of years of more measured integration into the global economy, was a major factor. Regaining control over financial markets and reduced reliance on external private capital flows will be a central policy challenge for all developing countries in the coming years. Policies to invigorate productive investment, stimulate technological upgrading and enter new markets will also be needed. For many developing countries, building and strengthening capacity in the manufacturing sector remains the surest way to increase productivity, allowing for both higher wages and export competitiveness. Experience shows that market forces cannot be relied upon to realize this goal and that a mixture of macroeconomic and industrial policies will be required in order to strengthen capital accumulation and private entrepreneurship. Furthermore, the international community will have to face up to the pronounced external constraints on development and to the need for exports and development assistance, rather than unstable private capital flows, to underpin a return to rapid and sustained growth in developing countries. All of these are essential ingredients of a successful strategy for improving labour standards in developing countries.
Article by : Jyotika Arora
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